DEVELOPMENT OF ECONOMIC INTELLIGENCE: OFFICE OF RESEARCH AND REPORTS VOLUME I 1950-1960

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• Document Number (FOIA) /ESDN (CREST): 05972161
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• Document Creation Date: September 12, 2023
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• Case Number: F-2018-01193
• Publication Date: September 1, 1973

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DEVELOPMENT OF ECONOMIC INTELLIGENCE:
OFFICE OF RESEARCH AND REPORTS
VOLUME I
1950 - 1960
by
(b)(3)
(b)(6)
OER 1
September 1973
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
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WARNING NOTICE
SENSITIVE INTELLIGENCE SOURCES
AND METHODS INVOLVED
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DEVELOPMENT OF ECONOMIC INTELLIGENCE:
OFFICE OF RESEARCH AND REPORTS
VOLUME
1950 - 1960
by
Copies;
#1 - CIA-HS
#2 - DDI
#3 - CIA-HS
#4 - DDI
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Foreword
Volume I of this history details the genesis
and early development of economic intelligence in
the Central Intelligence Agency, covering roughly
the decade of the 1950's. �The turn of that
decade -- in part because of the election of 1960
F and advent of the Kennedy Administration -- marked
a turning point in the scope and purpose of:.' the
economic intelligence mission. During the 1950's
the Office of Research and Reports (ORE) undertook
a massive assault on the economies of what was
initially known as the "Soviet Orbit," and later
the "Sino-Soviet Bloc." That these terms had to
be abandoned in the early 1960's was, of course,
caused by the crumbling of the monolithic image
presented by World Communism in the 1950's. This
was, however, only a part of the reason for the
change in the Office's mission. Events in the
developing "Third World" and in Western Europe in
the 1960's increasingly engaged the attention of
the nation's policymakers and led to mounting
demands from them for economic interpretations and
analysis. The existence in CIA of a large stable
of economists trained to do such interpretations
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and analysis made it inevitable that the Agency
would be called upon to broaden its mission.
Volume II of this history is a record of this
broadening.
Volumes I and II do not, however, attempt to
be a full-scale history of the Office of Research
and Reports (ORR). During its 17 year existence
(13 November 1950 to 1 July 1967), the Office
underwent an amoeba-like division of responsibili-
ties and functions. The functions that were
separated formed the working rationale of several�
successor Offices, each of which had its own period
of development within ORR, presumably contained
in the written histories of those Offices. The
volumes, therefore, concentrate on the economic
intelligence function from the time that it became
the dominant function of the new Office, itself
an offshoot of the old Office of Reports and Esti-
mates (ORE), until its demise and rebirth as the
Office of Economic Research (0ER).
Volume III covers the creation of OER and its
first five years of existence (1 July 1967 to
30 June 1972). The continued growth of the policy
support function in this period was marked by a
iii
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growing recognition that economic intelligence was
more than an arm of national security. It could
also serve the needs of national economic policy.
Thus Volume III details OER's contributions -- not
only on the "adversary" nations of the Communist
World and on the allied and neutral nations of the
Free World as they affect US security interests --
but also on all countries and international
groupings in a world of increasing economic inter-
dependence in which the US finds new challenges
and new competition to its economic position and
faces adjustment to a less dominant role in the
international economic arena.
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E.
CONTENTS
Page
Chapter I. Economic Intelligence in the
Office of Reports and Estimates . � � �
A. Organization
1. The Economics Group
2. Eastern Europe Division:
Economic Branch
3. General Division:
Branch!
4. The Transportation Division
�� OOOO
Functional
B. The Breakup of the Office of Reports
and Estimates
1. W.H. Jackson and The Dulles
Report
2. NSC Action 282
Chapter II. The Early Days of ORR � � �
A. The Period of Uncertainty
B. Announcement of ORR's Functions by
the DDCI, 18 December 1950
C. The Appointment of
as AD/RR
1. Initial Organization of
2. The Phi17sor
3. The Impact of the
shv
Philosophy
D. Staff Development
The Coordination Problem
H. Relations with WSEG
I. Accomplishments of
!Tour
. .
ORR
� �
1
3
3
5
7
7
9
13
15
16
17
19
22
24
30
32
38
44
44
47
47
52
53
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Chapter III. 1952 - The
A. Organizational Changes :59
1. The Breakup of the Analysis
Division 59
2. The Establishment of Areas
� �
B. The Initiation of Research on Com-
munist China
C. The Jurisdictional Conflict with
the Department of State
D. The Drafting of DCID 15/1
F. Accomplishments of the
Chapter IV. The Establishment of
Economic Research Area
Year .
the
61-
63
67
70
73
74
78
- A. Organizational Developments � � � � 83
B. Research Programming 89
Chapter V. Management of Economic Intel-
ligence Production 93
A. Research Programming 97
1. NIE Production 101
2. NIS Production 105
3. Other Contributions 109
4. "Self-Initiated" Projects 110
5. The S-Project Series 112
6. External Research 114
114
b. Foreign Population and
Manpower Studies 116
116
117
B. Organizational Adjustments � � � 117
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11.
1. Establishment of the Current
Support Staff
2. Operation "Dior"
118
122
C. Personnel Management 128
1. Special Recruiting � � � � 131
2. Training 135
Chapter VI. The Assault on the Soviet
Economy
145
A. Introduction
146
B. The Estimates File .. �
�
147
C. Aggregative Economics . � � � � �
154
1. Interindustry Accounting . �
.
155
2. National Product Accounting �
.
162
3. Ruble-Dollar Ratios
169
.
.
174
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E. The "Child's Guide" ..... .
.
.
177
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F. The Soviet Statistical Handbook .
.
179
Chapter VII. The Rest of the Bloc � �
.
184
A. Introduction
185
B. European Satellites
187
C. Communist China . � � � � � . � �
�
192
D. North Korea
198
E. North Vietnam
200
Chapter VIII. ORR's Response to the
Clamorous Customer
203
A. Military Economic Research . . �
�
206
B. The Response to Soviet Economic
Penetration
212
C. The Crisis Situations
220
1. Taiwan Strait
221
2. Uprisings in Poland and
Hungary
222
3. The Suez Closing � �� � � � .
�
225
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Chapter IX. The Soviet Growth Debate
Tables
Page
227
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1. Assignment of Personnel to New
Responsibilities of the Economic
Research Area
118
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2. Recruitment for the Economic Research
Area, 1956-70
133 .
3. Percentage of ERA Research Time by
Geographic Area
186
T
Figure
Reorganizations Effected by Operation
Dior, 1956-58 OOOOOOO � � . � � �
127
� Attachments
259
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A. General Order
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B. ORR Organization Chart
260
CIA Regulation No. 70
C. Divisional Organization
262
I�
D. National Security Council Intelligence
Directive No. 15
264
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E. ORR Organization Chart
266
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Chapter I
ECONOMIC INTELLIGENCE IN THE OFFICE
OF REPORTS AND ESTIMATES
r�
"There was, simply, nobody in command of ORE
... it existed as a bureaucracy without a defined
mission, and by virtue of its mere existence, busied
itself with grinding out an enormous volume of
generally worthless paper."
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"My principal contribution to CIA was ridding it
of the Office of Reports and Estimates."
-William H. Jackson, DDCI
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CHAPTER I
Economic Intelligence
in the Office of Reports and Estimates
Prior to the establishment of the Office of
Research and Reports (ORR)_ in November 1950, eco-
nomic intelligence as a CIA function enjoyed a
capricious existence �and an uncertain future. The
checkered career of ORR's predecessor office, the
Office of Reports and Estimates (ORE), is discussed
in detail in earlier Agency histories, but they
have surprisingly little to say about economic
intelligence in the early period.1/* Jackson
although they state that the importance
of economic intelligence was not unrealized prior
to 1951 2/ later admit that:
it was probably true that the organiza-
tion for economic intelligence in the
Office of Research and Estimates neither
answered the coordination problem, nor
� contributed very importantly to useful
economic estimates during its four years
of experimentation. 1/
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and also that "[The Office's] concern with produc-
tion in the economic intelligence field had been
marginal with respect to other studies of higher
priority." �/
A. ,Organization;
1, The Economics Group
The Office of Reports and Estimates (orig-
inally the Office of Research and Evaluation) was
developed during the incumbency of General Hoyt S.
Vandenberg as DCI (10 June 1946 to 1 May 1947)
Under Vandenberg, ORE developed from the
Central Reports Staff inherited from Admiral Souers
into a large central research, reporting, and esti-
mating unit Economic intelligence
was only one of its functional responsibilities.
In fact, �the first organizational recognition that
economics was a subject worthy of intelligence con-
cern appears to have been in December 1946 with
�the establishment of a small Economics Group in
ORE. The group was headed by
an economist who had been special assistant to the
Secretary of Commerce during the period 1942-46
and, �previous to that, Chief of the Economics Divi-
sion of the Bureau of Foreign and Domestic Commerce.
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Although there were ultimately a number of profes-
sional economists in this group,
This group, together with a
Transportation Group and several others with func-
tional responsibilities, were regardd primarily
as staff panels of expert consultants whose func-
tion it was to advise the line branches -- organized
on a regional basis -- in the preparation of intel-
ligence estimates. 5/
In addition to performing its consultative
function, the Economics Group, which like the other
groups eventually became, first, a branch and then,
a division, did produce some studies of its own.
Probably because of the orientation and background
of its chief and those he recruited, it concentrated
on the production of studies on strategic materials.
It also prepared an annual review of the world eco-
nomic situation for the use of other elements of
the Agency and for other intelligence agencies.
Starting in the spring of 1948, economic defense
became a major preoccupation of this group. At
that time the Assistant Secretary of Commerce for
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International Affairs requested the Agency's assist-
ance in drawing up a list of strategic commodities
for embargo to. the Soviet Bloc. This was in effect
the start of the Agency's. participation in the US
and the international economic defense program.
ORE's Economic Division and its successor, the
Economic Defense Division of ORR, were the principal
instruments of that participation� up through the
2, Eastern: Europe: Division:: Economic Branch
As indicated above, the principal producers
of finished intelligence in ORE were the six re-
gional branches .(later divisions) for which the
Economics Group and other functional groups served
as consultative panels. Of these regional units,
the Eastern European Branch under.
was the only one which had its own eco-
nomic section. This was established in June 1948,
and it became the Economic Branch in 1949 when the
regional branches were raised to divisions. With
its concentration on the Soviet Union and the other
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Communist countries of Eastern Europe -- in those
days usually referred to as "the Soviet Orbit,"*
this branch thus can be regarded as the nucleus of
the economic intelligence organization of ORR which
developed in 1951.
- As of July 1949, the Economic Branch had
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professionals headed by
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later became the first
Chief of Services Division
in ORR. The deputy was
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In addition to contributing to estimates, the branch
produced a number of industrial studies for export
control purposes and annual ec9nomic situation sur-
veys on some of the countries within its purview.
The closest approximation to the work that was to
be the preoccupation of ORR during its first year
of existence was IFI-181,. Resources and Allocations
of Steel, Aluminum, Petroleum, Electric Power, and
Technical Manpower for the USSR, 1949-1952, TS,
disseminated on 21 March 1950. 6/
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* The terms "Soviet Orbit," "Soviet Bloc," "Sino-
Soviet Bloc," and "European Satellite" have dis-
appeared from usage by the intelligence community
as the monolithic character of World Communism has
waned. They appear in this history as appropriate
to the period under discussion.
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3. General: Divisions:: Functional: Branch
:ORE''s General Division had the responsibil-
ity for processing communications intelligence, and
within this division, the Functional Branch, ,con-
sisting of about
analysts, concentrated on Soviet
industrial matters. Their, particular specialty and
the sensitivity of the source material made the
branch a logical cadre for expanded work in this
field after the creation of ORR.
4. The Transportation Division
ORE also had a Transportation Division which,
like the Economic Division, evolved from a group or
panel of consultants designed to serve the regional
production units. It concentrated on economic prob-
lems of international air, sea, and land transport.
These four units -- with a total professional
staff of less than
-- constituted the economic
intelligence establishment of the Agency until the
reorganization of 1950-51. The responsibilities of
the units were poorly delineated. Without an ade-
quate research base, they appear to have been
largely oriented toward current reporting. Although
they were surely aware of how little they knew about
foreign economies -- particularly those of the
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Communist countries -- they had no systematic plan
for increasing this knowledge, and they apparently
received little guidance on priorities. Nor were
they sure of their role in the national intelli-
gence effort since the ambiguities of the Agency's
charter had allotted economic intelligence -- along
with scientific and technical intelligence -- to
each agency in accordance with its respective needs.
The weaknesses of the haphazard approach
to economic intelligence as practiced in ORE were
not lost on the participants.
at the end of FY 1949,
.Economics Division, noted:
In his annual report
the Chief of the
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B. The Breakup of the Office of Reports
and Estimates
1.. W.H-.** Jackson and the Dulles Report
The Office of Reports and Estimates did not
long survive the entry on duty of General Walter
Bedell Smith as DCI, which occurred on 7 October
1950. The principal reason for the breakup of ORE,
aside from the general recognition of the obvious
fact that it was a large, unwieldy organization
with too many ill-defined functions, was the belief
that the estimating function should be separated
from the research and reporting functions. This
point of view is clearly expressed in the report of
the Intelligence Survey Group set up by the National
Security Council on 13 February 1948 -- the so-
called "Dulles Report." 8/ It was undoubtedly the
view of Smith's deputy, William H. Jackson, in
'particular, since he is quoted as saying that his
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proudest achievement as DDCI (7 October 1950 to
3 August 1951) was the abolition of ORE and the
establishment of the Office of National Estimates
(ONE). 2./ Jackson appears, in fact, to have been
the moving spirit behind the reorganizations of
1950-51. He had made it a condition of his accept-
ance of the post of DDCI that Smith approve the
principles of the Dulles Report. He stated also
that Smith was not particularly interested in organ-
izational matters and had been quite content to
turn them over to his deputy. 10/
The Dulles Report recommended not only the
establishment of a "small Estimates Division" but
also the creation of a "Research and Reports Divi-
sion to perform intelligence research and reporting
services of common concern." 11/ The elements of
ORE that would form the nucleus of the proposed
division were: the Scientific Branch (instead this
branch was upgraded while still in ORE to become
the Office of Scientific Intelligence (OSI), the
Map Branch, the economic and transportation panels,
and some elements from the regional branches. Also
to be included were the Foreign Documents Division
(FDD) of the Office of Operations (00) and the
'library and various registers maintained by the
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Office of Collection and Dissemination (0CD). 12/
It is apparent that the authors of the report vis-
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ualized the new division not only as a repository
for the remnants of ORE but also as a mechanism for
producing finished intelligence in those areas
that had not been designated as within the dominant
interest of a specific agency by the National Secu-
rity Council.
The reorganizations effected by Smith and
Jackson did not, of course, put an end to the inter-
agency rivalries or jurisdictional disputes that
form the theme of history of the pre-1950
period. They did, however, help to clear the atmos-
phere. This may be attributed in large part to
Smith's prestige deriving from his status in the
* NSCID No. 3 of 13 January 1948 set forth the
following as the general delineation of dominant
interests:
Political, Cultural and
Sociological Intelligence. . Department of
State
Military Intelligence � � � ^ Department of
Army
Naval Intelligence Department of
Navy
Air Intelligence Department of
Air Force
Economic, Scientific and Tech-
nological Intelligence . . � Each agency in
accordance with
its respective
needs.
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military, his experience as a soldier and a diplo-
mat,* and his personal standing with the President.
(Same would add his commanding personality as a
factor.) It is also apparent that Smith and Jackson
proceeded cautiously and conservatively to establish
the authority of the Agency where they wanted it
established and, �as noted by Jackson
appeared ready and even eager to withdraw
CIA from any debatable types of functions
and programs, especially in certain fields
of intelligence research and production,
which might disturb what the National Se-
curity Council had called the dominant in-
terest of the departments. 12/
Although the organization and functions of
the research and reports unit that emerged in 1951
were rather different from those suggested by the
Dulles Report, at least the separation of the est-
imates function from the other functions of ORE
was achieved. Beyond this, there is no evidence to
suggest that there was much concern about the proper
organization of the remaining functions of ORE.
As in the Dulles Report, �the initial purpose of ORR
seems to have been as a catch-all of research and
service functions. Fortunately the early estab-
lishment of OSI prevented what would surely have
.* It will be recalled that Smith served as Ambas-
sador to the Soviet Union from 22 March 1946 to
25 March 1949.
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been an unhappy marriage of economic and scientific
research in the same office, while the ultimate
decision to limit ORB to economic and geographic
research and the coordination of basic intelligence
left the service functions of FDD and OCD undis-
turbed.
2. _NSC Action 282
That economic intelligence emerged as the
main business of ORR then, does not appear to have
resulted from the recommendations of the Dulles Re-
port or the ideas of the Agency's new leaders. The
development can be attributed, in part, to the de-
cisions and philosophy of ORR's first head,
-- as will be shown in the next chapter --
and in part to the action of the National Security
Council of 3 March 1950, directing the CIA to organ-
ize and conduct a study of foreign economic intel-
ligence requirements and facilities, to make arrange-
ments for meeting these requirements, and to pre-
pare a plan for satisfying such requirements, in-
cluding a definite allocation of responsibilities
among the agencies concerned. 14/
This action, which became formalized as
NSC Action 282, resulted from a proposal for such
.a study by John R. Steelman, Acting Chairman of the
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National Security Resources Board, whose primary
official interest was in mobilization planning but
who recbgnized the relevance of his requirements
to broader aspects of national security policies
and programs. Merely to call for an appraisal of
the nation's foreign economic intelligence facili-
ties and arrangements, as was done by Steelman,.
was to focus attention on the chaotic state of the
US Government's economic intelligence effort in
1950. Although there is no direct evidence that
NSC Action 282 forced or even suggested the crea-
tion of an economic intelligence unit in CIA, the
surfacing of the issues could not fail to have been
a factor in the selection of this particular solu-
tion to the organizational problems created by the
disintegration of the old Office of Research and
Estimates.
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Chapter II
THE EARLY DAYS OF ORR
"All the business of life is to endeavor to find out
what you don't know by what you do."
-Arthur Wellesley, Duke of Wellington
"...patient and thorough examination and analysis
of the mass of detailed information available to us
as to the present status and prospects of the Soviet
economy ... is ORR's main job. It may well be the
most important research job there is in the country
today."
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CHAPTER II
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A. The Period
The Early Days' of ORR
of Uncertainty
The Office of Research and Reports (ORR) was
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formally
established
on 13 November 1950 by General
Order
(See Attachment A.) The same order
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also established the Office of National Estimates
(ONE), and the implication was that ORR was to pick
up all the remnants of the old Office of Reports
and Estimates. Although this turned out not to be
the intention, apparently nobody advised
the Assistant Director of the old office
who was duly named Assistant Director, Research
and Reports, in the order, and who proceeded to
draw up alternative organization plans for the new
office.* None of the plans he proposed except the
last bore much replationship to the realities of
the situation. 16/ They were apparently based, in
the absence of more immediate guidance, on the
Dulles Report, which had called for a:
According to everyone but
knew that his days were numbered. In fact,
General Smith had planned to fire him back in Octo-
ber because no current coordinated estimate of the
Korean situation had been prepared by ORE, but
Jackson had persuaded him that it should not be
done that abruptly. 15/
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Research and Reports Division responsible
for authoritative research and reports in
economic, scientific and technological in-
telligence, the maintenance of central
reference facilities, and such other mat-
ters as are deemed of common concern. 17/
With
obviously out of touch with real-
ity and ONE skimming the "cream" off the Office,*
there was a general scurrying about of the other
people attempting to relocate themselves in other
offices of the Agency or in the Department of State,
leaving what Jackson
described as a
"disintegrating establishment." 19/
B. Announcement of ORR' Functions by the DDCI,
18 December 1950
At least some of the ambiguity concerning the
new Office's mission was dispelled at the Director's
staff meeting on 18 December 1950. The DDCI,
William H. Jackson, after extensive discussions
with the Department of State, announced on this
occasion that ORR would have three primary activ-
ities -- the National Intelligence Survey (NIS),
Map Programs (that is, geographic intelligence),
and a "new venture into economic intelligence re-
search and evaluation, especially with respect to
(b)(3)
(b)(6)
(b)(3)
(b)(6)
* According to a call to ONE was re- (b)(3)
garded as "an invitation to join Noah's Ark." 18/ (b)(6)
17
L
SE
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the Soviet and satellite areas" -- plus any other
services of common concern
by the NSC. 20/
On the same day
that might be directed
.proposed a 90-.day
interim organization of ORR consisting of the fol-
lowing divisions:
Regional Research Division
Psychological Division
Economic and Industrial Division
Geographic Division
Basic Division
Although it is nowhere stated in the proposal, it
appears that the Regional Research Division and
the Psychological Division were "holding operations"
for ORE remnants until it was decided what to do
with them. The elements that were to form the
Regional Research Division apparently became the
nucleus of the Office of Current Intelligence,
while the Psychological Division, which was assigned
only three persons, was not accepted as an appro-
priate function for ORR by successor,
The function was transferred to the De-
partment of State, and the Division itself formally
terminated on 15 April 1951. The Economic and
Industrial Division as proposed by
in this
case had a large non-Soviet Orbit Branch, indicating
18
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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that he was not yet persuaded that the office was to
concentrate �on the "Orbit" in its economic intelli-
gence activities. 21/
final effort at organizing the office
appeared in a briefing paper prepared for training
purposes. It called for six divisions, namely:
Materials
Manufacturing
Economic Services
Economic Analysis
Basic
Geographic
and defined the basic fields of interest in eco-
nomic intelligence as:
(b)(3)
(b)(6)
1, I
Soviet-Orbit Economics
Worldwide Transportation
Worldwide Communications
Worldwide Strategic Commodities
22/
C. The Appointment of
AD/RR
(b)(3)
as
(b)(6)
LJ
The appointment of
as Assistant
(b)(3)
(b)(6)
j
Director for Research and Reports was announced
in
General Order
No. 40 on 4
January 1951.
t_t
the son of
(b)(3)
(b)(6)
fl
had received his
doctorate in economics from Yale
in 1941 and, after
fl
J
wartime service in the Office of Price Administra-
tion and the War Shipping Administration, served
as
19
in
(b)(3)
(b)(6)
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TT
fl
_
El
L_:
1946. He came to the Agency from the Massachusetts
Institute of Technology where he had been Associate
Professor of Economics since 1949.
came to CIA at the behest of the new
leaders of ONE,
and Sherman Kent,
with whom he had worked in the State Department
following World War II (November 1945, - July 1946).
He apparently also came with a certain reluctance.
Regarding the job as a limited commitment, he did'
not bring his family to Washington, but boarded
with an old friend and colleague,
As he explained later,
in the fall of 1950 Allied
fortunes in the Korean War were at their lowest ebb,
and there was a fear in the academic world that the
United States would soon be engaged in a full-scale
war.
feeling and that of his MIT col-
leagues was that he might as well "be drafted for
the assignment now rather than forced into a worse
one later." 23/
In spite of his expressed reluctance to under-
take the assignment,
soon put his stamp on
ORR and on the course of economic intelligence in
.later the Deputy Director/Plans, was
not employed by the Agency during tour
with ORR.
20
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6) �
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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the Agency and the community for the next several
years. He had been told by Smith and Jackson that
he could have more or less carte blanche within the
broad directives that were being laid on for eco-
nomic intelligence. He recognized that his job was
"to get on top of the Soviet economy." On the way
�to solving this problem, he also realized that he
must cope with the disintegration of morale within
the Office.
he was familiar
with the sort of disintegration that takes place
when a staff is broken up. 24/
After he reported for duty on 15 January 1951,*
soon recognized that, of the three main
production tasks facing ORR, economic intelligence
presented the greatest challenge. The coordinating,
editing, and publishing of the NIS and the produc-
tion of geographic intelligence were functions that
had been carried out for some time in ORE and were
being continued with no significant change in mis-
sion or leadership in ORR. He was therefore content
to leave their day-to-day management in the hands
(b)(3)
(b)(6)
(b)(3)
(b)(6)
resigned from the Agency soon afterwards (b)(3)
to take a position with the Federal Civil Defense (b)(6)
Administration.
21
SE
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I _ I
1 I
fl
1_1
_
fl
7
-of their experienced and capable chiefs. The con-
duct of research into foreign economic factors
affecting the national security had, on the other
hand, never been appropriately organized; the nature
of the economic intelligence mission had never been
systematically examined or described; basic economic
data were scattered throughout the Gqvernment and
elsewhere; and many agencies were, for their own
purposes, collecting and disseminating economic
information with little or no coordination.
1. Initial Organization of ORR
As an interim table of organization (4 Feb-
ruary to 30 June 1951),
selected the last
of several schemes available among the
pro-
posals. This basic line organization of ORR, as
announced in CIA Regulation No. 70, dated 19 Janu-
ary 1951, called for six divisions and a Production
Staff. Two of the six divisions Basic-Intelligence
and Geographic, were established to continue the
functions that had been a part of the Agency's mis-
sion in the days of ORE. The other four were newly
established to carry out the economic intelligence
mission. Although a number of reorganizations were
to follow as this mission was further delineated,
.the basic four-division structure for economic re-
22
(b)(3)
(b)(6)
(b)(3)
(b)(6)
L.
S ET
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search, consisting of Economic Services, Materials,
Manufacturing (redesignated Industrial on 18 Janu-
ary 1951), and Economic Analysis Divisions, proved
to be quite durable. Not until 1962 was the eco-
nomic intelligence activity to undergo a reorgani-
zation that upset this basic structure at the divi-
sion level. Curiously, the brief mission and func-
tions statement for the Office contained in CIA
Regulation No. 70 made no mention of economic intel-
ligence.*
The other refinements of this organizational
structure introduced in the early weeks of the
regime were minor: filling an obvious
omission by establishing an Administrative Staff,
dividing the Production Staff into a Reports Divi-
sion and a Requirements and Control Division, and
establishing the Strategic Division (D/Z). The
latter was designed to handle communications intel-
ligence material pending the development of an all-
source research center.**
* See Attachment B; see also Attachment C
for the branch breakdown within the economic re-
search divisions.
** The nucleus of the Strategic Division was a
group of about professionals with supporting
clericals who had carried on industrial research as
part of the old General Division of ORE. The main
.body of General Division [footnote continued on p. 24]
(b)(1)
(b)(3)
23
(b)(3)
(b)(6)
SE T
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� ET
The principal change that
effected
in the organizational plans presented to him on his
arrival was to reject the proposed large Plans and
Policy Staff, which he regarded as placing the real
direction of the Office in the hands of non-sub-
stantive people. He believed that this was a mili-
tary-type scheme not applicable to the kind of oper-
ation he proposed to run. He preferred to operate
directly through his division chiefs. 25/
2. The
Philosophy
Of greater significance than the organiza-
tional structure in the effort to launch a system-
atic economic intelligence program was the develop-
ment of a common understanding in the Office as to
the definition, purposes, and modus operandi of the
foreign economic intelligence mission. Not only
was this step important to the efficient accomplish-
ment of the mission, but it was recognized as an
was assigned to the newly formed Office of Current
Intelligence (OCI) in January 1951, but this partic-
ular group, the former Functional Branch, moved
virtually intact into ORR. Because of the sensi-
tivity of its unique source material and the partic-
ular skills needed to exploit it, the group had
developed an espr-it de corps, which in the minds
of many of its members set it apart from the rest
of the Office. This fact, together with the fact
that it duplicated the substantive responsibilities
of the other divisions, �caused a number of manage-
ment problems which continued during its separate
'existence and for some time after its dissolution
in September 1953. See IV, A, below.
24
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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71
obvious need in terms of personnel management, for,
as Jackson
point out, among
most pressing problems were the needs to find a
suitable and productive job for each person retained
in ORR and to transform "a demoralized collection
of people into an organization capable of team
work." 26/
The fundamental concepts of ORR's mission
were developed by
and given written expres-
sion in a paper, The Role of ORR in Economic Intel-
ligence, which he prepared in the summer of 1951. 27/
This paper, which became a blueprint for ORR's eco-
nomic intelligence activities in this early period,
defined economic intelligence as:
intelligence relating to the basic produc-
tive resources of an area or political unit,
the goals and objectives which those in
control of the resources wish them to
serve, and the ways in which and the ef-
fectiveness with which these resources are
in fact allocated in the service of these
various goals. 28/
Under this definition, economic intelli-
gence was seen as more than an inventory of the
target country's resources. Such an inventory
would be of little use without an understanding of
the objectives the resources are to serve and the
military establishments and social and political
25
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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institutions that they support. Economic informa-
tion becomes economic intelligence only when its
relevance to national security problems is made
clear. Thus the economic intelligence mission was
described as having at least five basic purposes:
L
r--
I
1--i
_
(1) To estimate the magnitude of pos-
sible present or future threats to the
US and its allies by evaluating the total
economic resources on which the possible
enemy's military potential must depend;
(2) To estimate the character and lo-
cation of such threats by learning the
potential enemy's allocation of these re-
sources;
(3) To assist in estimating the in-
tentions of the potential enemy;
(4) To aid in decisions on policies
and actions that can reduce the possible
threat by seizing on or creating economic
vulnerabilities;
(5) To estimate the probable develop-
ment of East and West over a period of
years under the assumption that war does
not occur during the interval. It is
essential to policy planning to have the
most accurate estimate possible of the
relative economic strengths of both sides
in the Cold War. a2/
Although the fifth of these basic purposes
pointed to the need for knowledge of the Free World
economies as well as those of the Soviet Bloc coun-
tries, the paper makes it clear that ORR's effort
was to be concentrated on the latter.
26
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This is partly because the Iron Curtain
has made access to Soviet economic intell-
igence more difficult, partly because the
Soviet economic potential is perhaps the
most critical for our national security,
and partly because, for a variety of rea-
sons, the economic potential of other areas
crucial for our national security, such as
Western Europe, has been more extensively
studied. The mature economies of Western
Europe have long been an object of study
by both academic and government economists.
The European Recovery Program has stimu-
lated extensive analysis of the 6haracter-
istics, needs, and prospects of the Marshall
Plan countries. Thus the economic research
effort in man-hours directed at the USSR
and its satellites has been vastly less
than that applied to Western Europe, al-
though, because of the Iron Curtain, the
effort required to produce comparable
understanding is many times greater. For
these reasons we have concluded that the
principal effort of ORR in intelligence
production must be focused for the immed-
iate future on the economic problems of
the Soviet Bloc. 22/
The task implicit in these five purposes
was viewed as a formidable one. Indeed a panel of
consultants, upon reviewing the aims of ORR, ex-
pressed the opinion that the task would require
"several thousand" trained analysts if it were to
be performed effectively. 31/ A staff of this mag-
nitude was, of course, never achieved or even seri-
ously contemplated; the largest number of profes-
sionals on board at any one time in what became the
Economic Research Area appears to have been
.reached in 1953.
27
(b)(1)
(b)(3)
..Q1t11
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n
r
It was, of course, recognized that large
gaps existed with regard to the basic data on the
Soviet economy, and the first months of ORR's
existence were spent in making a thorough inventory
of what was known -- with the aim of defining what
was not known and what should be known -- about
Soviet economic capabilities. Termed the "Inven-
tory of Ignorance," this became the base from which
the Office, by what
called "the Method of
Successive Approximations," then proceeded to de-
velop a series of tentative conclusions reaching
for constantly greater exactness as to the upper
and lower limits of Soviet capabilities. The task
thus involved a constant repetition of: review
and examination of information that was available;
selection of points of greatest weakness; concen-
tration of collection, research, and analytic
efforts on these points; then re-review and re-ex-
amination to determine whether emphasis should be
shifted. As indicated by the consultants' estimate
of "several thousand," no one really knew how many
analysts or how long a period would be necessary to
achieve a satisfactory degree of success -- or, in
fact what would constitute a satisfactory degree
of success in this endeavor -- and of course the
28
(b)(3)
(b)(6)
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fl
P
fl
fl
r,]
same process was contemplated in some degree for
the European Satellite nations as well, and ulti-
mately for Communist China. It is little wonder,
therefore, that scant consideration was given at
the time to work on Free World countries.
"The Inventory of Ignorance" resulted in a
basic research program called originally "Task Force
Extension." This consisted of 91 projects pro-
posed in July 1951 and 15 added later in that year.
In addition to these programed projects, more than
50 additional projects were laid on during the last'
six months of 1951 --.some "self-initiated" (pro-
posed by branches and divisions)*; others the result
of requests from other offices or agencies. 32/
guidelines recognized that the
dilemma "of the clamorous customer versus the basic
study" demanded a compromise. If the Office tried
to answer every question put to it, it would never
find the time to build a reliable base of informa-
tion and sound judgment about the target economies;
if it devoted itself to exhaustive research, events
and the policymaking customers would pass it by.
Since there was no either-or solution possible,
exhorted his forces to:
* See v, A, 4, below.
29'
(b)(3)
(b)(6)
(b)(3)
(b)(6)
SEIRET
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try to answer the most important of the
problems put to us from day to day as
quickly and as compet6fttly as possible.
But we must reserve a major part of our
energies for improving the foundation of
knowledge from which better quick answers
can be given. [Emphasis supplied.] 33/
1
had, of course, put his finger on
a problem that was always to plague ORR (and its
successor OER); how to maintain an adequate up-to-
date research base to support with confidence the
answers to the questions that policy officers would
pose, when policy support inevitably encroached on
the reserves of time and other resources needed for
basic research.
3. The Impact of the
The process of economic
duction as visualized by
secretiveness of the USSR under Stalin and was
well, suited to the capabilities of ORR in its early
years and to the demands that were made upon the
Office during that period. As indicated above,
The Role of ORR in Economic Intelligence became-a
blueprint for the Office's activity. The paper and
its concepts were well received -- not only by the
production elements in the Office, which were look-
ing rather desperately for guidance, but also by
those interested in developing guidelines for the
30 ,
(b)(3)
(b)(6)
Philosophy (b)(3)
(b)(6)
intelligence pro-
was keyed to the (b)(3)
(b)(6)
t
�sErGits"
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ET
F-1
Li
F-1
I
F'
-
intelligence process in more general terms. The
greater part of this paper was reprinted under a
revised title, The Nature and Methods of Economic
Intelligence, in the third issue of Studies in
Intelligence and described in an editor's introduc-
tion as "a distinguished contribution to the study
of intelligence analysis methodology:" 34/ The
editor went on to note that:
its application is by no means limited to
economic intelligence; the same order of
analytic problems, the same problems of
sources, extent of information, competing�
requirements, liaison, and coordination
arise in any intelligence acitivity. The
same problem addresses, that (b)(3)
of building authoritative knowledge out of (b)(6)
fragmentary sourceslis perhaps the cen-
tral problem of the intelligence process
as a whole. 35/
In later years, as will be seen, the eco-
nomic intelligence problem-changed. As collection
processes improved and as the Soviets and their
European Satellites became more open in their will-,
ingness to release economic data,* the job of eco-
nomic intelligence became easier in one sense (more
data to work with) and more difficult in another
(more sophisticated analysis was needed to inter-
pret the data). With these changes came a change
* The ;first Soviet statistical handbook was re-
'leased in'1956.
31
S T
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in the type of expertise required by the Office.
Lj
To, achieve the breakthroughs sought by
Method of Successive Approximations required a
knowledge of techniques of industrial processes:
the ability, for example, to estimate output from
studies of factory floorspace, number of workers
employed, and the like.
observed that:
there must be present in our work a much
heavier dose of technical and engineering
thinking than is customary in economic
studies.' 36/
Thus ORR needed and recruited during this period
technical experts in various industries and services
The need for skills in economic analysis, while
present in this period, became much more pressing
in later years as the questions changed and emphasis
was put on economic growth patterns, resource allo-
cation, costing exotic space and military items,
intra-Bloc economic relations, relations with the
non-Communist world, and.particularly as the Office
took on increasing responsibilities for coverage of
Free World economies.
D. Staff Development'
The development of a'staff of analysts -- both
economists and technical experts -- capable of the
'job that
envisioned meant, in terms of
32
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
rro
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numbers alone, considerable expansion. The
of ORE available and assigned to the Office
economic divisions as-of 1 February 1951 consisted
residue
for
the
fl
(b)(1)
of professionals for the Materials Division,
(b)(1)
(b)(1)
(b)(3)
(b)(3)
(b)(3)
for the Industrial Division, for the Services
(b)(1)
for
(b)(1)
Division, for the Analysis Division, and
(b)(3)
(b)(3)
fl
the Strategic Division. 22/ By intenal reassignment
and external recruitment, this nucleus of pro
-
(b)(1)
(b)(3)
fessionals had increased by 1 July 1951 to
1-1
on
(b)(1)
duty. or awaiting clearance for the economic divi-
(b)(3)
F-
sions.' 22/ By the end of 1951 the actual
on-duty
professional strength of the five economic
divi-
Fl
L_J
sions was 39/
(b)(1)
(b)(3)
1-7
The group. inherited from ORE for the economic
divisions included, in addition to the five divi-
FT
sion chiefs,* both technical specialists and eco-
nomists, but there was a strong overload of the
F
r
former -- particularly in the higher grades. It
took some time to weed out those who were incapable
of meeting ORR's new responsibilities, but many of
the ORE group had significant careers in ORR and
Economic Analysis Division
Economic Services Division
Industrial Division
Materials Division -
Strategic Division -
33
(b)(3)
(b)(6)
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_
rn
made valuable contributions in their specialities
in subsequent years. A notable example among the
ORE professionals who continued in ORR was
whose career as an expert in Russian
agriculture dated back to service in the Russia of
the Czars and whose value to the Agency as an
expert on Soviet agriculture caused him to be
exempted from the normal retirement age regulations
until he was retired in 1961 at the age of 84.*
Others of this ORE group who ultimately served
in ORR as Branch Chiefs, Staff Chiefs, or higher,
34
(b)(3)
(b)(6)
(b)(1)
(b)(3)
(b)(6)
(b)(1)
(b)(3)
(b)(6)
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The recruitment effort during
regime
continued to seek out technical specialists in
certain categories, but the emphasis was toward
acquiring people with a broader background in eco-
nomics; a few with training in other social science
disciplines, such as history and political science,
were also added in this period. The specialized
nature of Strategic Division's work required a
knowledge of Russian, and many of its recruits were
recent graduates of Russian language and area pro-
grams, which became popular in a number of uni-
versities after World War II.
spent much time and effort attempting
to recruit economists of proven quality, but was,
35
(b)(1)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
fl
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L J
.
in his view, largely frustrated by the security
clearance problem. Added to the chronic problems
created by the long passage of time between initial
contact with a prospect and his security clearance
was the fact that, by the time clearances were
achieved, the war scare of late 1950, which had
been the primary reason for acceptance (b)(3)
(b)(6)
of a CIA job, had considerably abated. Many of
the people he tried to hire were former colleagues
and acquaintances from World War II Washington who
had happily returned to academic life after that
war and wire in no mood to return. Turning under
these cireumstances to the recruitment of less ex-
perienced economists, preferably Ph.D.'s or poten-
tial Ph.D.'s, he did achieve some success. 41/
The group of young economists recruited during
this period included many who made significant
careers in ORR as well as a number who moved on to
positions of distinction in other parts of the
Agency, other departments of government, or the
academic community. The Analysis Division, with
its mission of aggregating and interpreting the
data developed by the other divisions on the Soviet
Bloc economics, naturally drew the largest number
1
Fj
of those with advanced economic training. One of
36
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.r
these was
who entered on duty in
June 1951 and became the first chief of Analysis
Division after it was divested of its economic
defense duties and became strictly a research and
analytical arm of the Office in 1952.* Although
resigning to reenter academic life in the fall of
1952, he remained active as a consultant to the
Office until June 1963.** He also became one of
the Office's major antagonists in the debate over
Soviet economic growth in the late 1950's.***
Others among the young economists recruited
during the
era included:
* See III, A, 1 below
*** See IX, below.
37
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(1)
' (b)(3)
(b)(6)
(b)(3)
(b)(6)
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'
Also recruited during this period were a few
young analysts with neither a technical specialty
nor an economics major. That this proved no hand-
icap is attested by the careers of the following:
E.. The Coordination Problem
In addition to organizing and staffing an office
to .conduct economic intelligence research and to
providing guidelines for this activity,
38
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had to respond to the directive of NSC Action 282,
3 March 1950, calling on the CIA to conduct a study
and prepare a plan for satisfying the foreign eco-
nomic intelligence requirements for the national
security, including a definite allocation of re-
sponsibilities among the agencies concerned. 42/
This directive had apparently been shelved in the
confusion surrounding the organizational upheavals
following November 1950. As soon
course had been set, however,
Dr. Walt W. Rostow -- at that time an
as the Office
assisted by
ORR consultant
and an MIT colleague -- moved to address the com-
munity-wide aspects of the problem.* The results
of their study were duly forwarded to the NSC on
31 May 1951.
In his covering memorandum the DDCI pointed
out that ORR had been established to coordinate
the economic intelligence activities of other agen-
cies and to produce such .economic intelligence as
was not otherwise allocated. 43/ In addition, he
recommended the establishment of an Economic Intel-
ligence Committee (EIC) as an appropriate mechanism
to assure that:
39
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(1) the full economic knowledge and
technical talent available in the Govern-
ment can be brought to bear on specific
,issues involving the national security,
and
(2) important gaps in the collective
knowledge of the Government can be ident-
ified on a continuing basis and responsi-
bility for filling them be allocated as
they are disclosed.
It was pointed out that some 24 agencies of the US
Government (within which some 77 subordinate units
were identified) regularly collected and analyzed
foreign economic data. Not only was there no ade-
quate machinery for the mobilization of the avail-
able data and analytic competence around security
problems, but also there were important gaps in the
collective knowledge of the Government. To provide
such machinery and to fill these gaps, �the proposed
EIC would have the following functions:
(1) Arrange concerted economic intelli-
gence support, on selected major issues,
for studies of interagency interest re-
quested by the Intelligence Advisory Com-
mittee, the Joint Chiefs of Staff, etc.
(2) Arrange for the mobilization of the
data and analysis available, relevant to
appropriate operating problems of any mem-
ber agency requesting assistance, or of any
other agency dealing with economic security
problems, which may request assistance.
(3) Examine continuing programs of
fundamental economic research relating to
the national security throughout the United
40
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States Government and recommend to the Intel-
ligence Advisory Committee for appropriate
action allocation of responsibility for
specific fields of inquiry where such allo-
cation appears appropriate.
(4) Review and report to the Intelli-
gence Advisory Committee from time to time
on the pertinence, extent, and quality of
the data and analysis available, bearing
on the issues analyzed.
(5) Recommend to the Intelligence Ad-
visory Committee for appropriate action
priorities and allocation of responsibil-
ities for the collection and analysis to
fill specific gaps in the economic intel-
ligence needed for national security.
(6) Maintain a continuing review of the
foreign economic intelligence activities of
the United States Government as they relate
to the national security.
(7) Make such special reviews of eco-
nomic intelligence distribution and proc-
essing procedures as may appear useful, and
make recommendations for improvement to the
Intelligence Advisory Committee, which shall
have responsibility for instituting such
action as it may judge appropriate.
(8) Prepare coordinated reports which
present the best available foreign economic
intelligence.
In spite of the clear directive in NSC Action
282 to prepare a plan based on a definite allocation
of responsibilities among the agencies, the report
recommended against any attempt to allocate respon-
sibility for economic intelligence production among
the various agencies "at this time" because virtu-
ally all the agencies producing such intelligence
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,..rerRET
had operating needs for it in the discharge of
their missions, and many of the problems were of
direct operating concern to two or more agencies.
This failure to allocate responsibilities was to
cause jurisdictional problems from time to time in
the coming years, but it was probably necessary at
this point in order to prevent a jurisdictional
squabble which might have delayed acceptance of the
EIC. In addition, ORR, only a few months old and
_
n.
L
not yet staffed to do the job as
visualized
it, was hardly in a position to claim exclusive
, jurisdiction for any portion of the economic intel-
ligence production responsibility. The report did
point out, however, that ORR had been recently
organized to conduct basic research in "a number
of economic fields affecting the national security
with special emphasis on authoritative basic re-
search into the economy of the Soviet orbit." 44/
NSC Action 282 resulted not only in the estab-
lishment of the EIC but also in the issuance of
NSCID 15 on 13 June 1951, which, among other things,
directed the Central Intelligence Agency to:
conduct, as a service of common concern,
such foreign economic research and produce
such foreign economic intelligence as may
be required: a) to supplement that produced
by other agencies either in the appropriate
42-
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discharge of their regular departmental
missions or in fulfillment of assigned
intelligence responsibilities; b) to fulfill
requests of the Intelligence Advisory Com-
.mittee.*
There were in fact few problems of jurisdiction
during ORR's first year. A letter to the Secretary
of State from the DCI dated 1 February 1951 acknowl-
edged State's primary responsibility for political,
cultural, and sociological intelligence, but with
respect to economic intelligence promised to "dis-
cuss .... appropriate procedures [for] ... an effec-
tive coordination of such economic intelligence ac-.
tivities." 45/ There is no record of any demurrer
on the part of State to ORR's announced intention
to concentrate major resources on economic intelli-
gence concerning the Sino-Soviet Bloc, as, it emerged
from the discussions and negotiations relative to
the establishment of the'EIC� and the issuance of
NSCID 15. When paper, The Roi.e.of ORR
in Economic Intelligence, was distributed, he re-
ceived a letter from
3irector of the
Department's Office of Intelligence Research (OIR)
* See Attachment D. This directive, and particu-
larly the quoted paragraph, became ORR's charter
for its economic research activities for the next
three years: that is, until DCID 15/1 of 14 Sep-
tember 1954 spelled out the Agency's economic in-
telligence role more precisely.
43
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praising the paper but with a veiled implication
�that State was reserving its rights with regard to
departmental intelligence needs. 46/ This was pos-
sibly a harbinger of more difficult jurisdictional
problems with the State Department in the years to
come.
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F1
Li
Li
In
1_1
Li
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-
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fl
4b
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Li
rn.
47 .
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7-1
48
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177
L
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LJ
1_1
ri
LJ
Li
Li
Li
Li
ri
(-1
I
Li
.49
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r-1
LJ
t_J
fl
LJ
Lj
LJ
71
LJ
LJ
L_J
t_J
fl
t_J
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SE 'T
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in
51
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L
Li
L_
7
(b)(1)
(b)(3)
H. Relations with WSEG
An important consumer of ORR's products, in
day as well as later, was the Weapons (b)(3)
(b)(6)
Systems Evaluation Group (WSEG) of the Office of
the Secretary of Defense. The studies requested by
this organization usually coincided quite closely
with work that ORR had an interest in for the accom-
plishment of its overall mission and were therefore
readily accommodated within the regular research
activities of the Office. For example, in February
1952, WSEG requested a broad-gauged study of agri-
culture and crops in the USSR. 52/ Other projects
undertaken for WSEG in 1952 included a study of
basic material and manpower inputs for certain items
of Soviet military equipment and supply and an
estimate of the minimum annual civilian petroleum
consumption of the Soviet Bloc in time of war.
The negotiation between WSEG and ORR on the
details of some of these requests was handled on
the WSEG side by
A serendip-
itous result of this relationship was, of course,
52
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_./
Li
Li
Li
achieved in 1953 with the transfer of
from
WSEG to become the first chief of the Economic Re-
search Area of ORR.
I. � Accomplishments' of' Tour
By early 1952, when left CIA and re-
turned to M.I.T.,* ORR had been launched in terms
of its major objective: .the analysis of the Soviet
economy. The "Inventory of Ignorance" had been
just about completed -- for its first go-around at
least. An initial look at the East European Satel-
lites had also been accomplished with the publica-
tion of the Office's first basic intelligence re-
port, CIA/RR Project 6-51, The European Satellite
Power Complex, consisting of 1,554 pages of mate-
rial on the individual countries and a 19-page sur-
vey and analysis of the economic significance of
the satellite countries to the Soviet Union. Little
had yet been done, however, on the Communist China
problem.
remained at M.I.T. as Director of the
Center for International Studies (CENIS) until his
death in December 1969.
An authority on economic development of underdevel-
oped countries and on East-West trade, he served in
1965 as a member of the Miller Committee, appointed
by President Johnson to explore the possibilities
of expanding trade relations with the countries of
Eastern Europe
53
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(b)(3)
(b)(6)
(b)(3)
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(b)(3)
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The production record of the economic components
fl
during 1951 included:
Intelligence Memoranda,
Task Force I papers (that is, "The Inventory of
Ignorance" or,, more formally, Project 3-51,. Pre-
liminary Basic Inventory of Economic Intelligence
Concerning
Reports,
Estimates,
and
the USSR), of which
were Provisional
contributions to National Intelligence
apers in support of other CIA Offices,
miscellaneous projects in support of outside
'requesters. iy
own assessment of the substantive
accomplishments during his regime is of interest.
He believed that a few papers were produced which
had had significant influence in Washington. For
example, a paper on East-West trade had brought
various important people to hold less exaggerated
ideas of the effectiveness of trade controls in
economic warfare against the USSR.* He also be-
lieved that the economic reports issued under his
stewardship had narrowed the gap that had existed
between the extremes of views regarding Soviet
East-West Trade, 16 April 1953, S., the gist of
which was that the Soviet Bloc could adjust to the
loss of Western export [footnote continued on p. 55]
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(3)
(b)(6)
did not further identify this paper. (b)(3)
It was probably an early version of the EIC contri- (b)(6)
bution to NIE-59, Probable Effects of Severance of
54
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�
,
L
economic capabilities. On the one hand were the
people who tended to think that the USSR could do
virtually anything, and on the other, those that
�thought it could do practically nothing. ORR had
� taught them to see approximately where the truth
lay between these extremes. 54/
If this latter were in fact the case, it was no
small accomplishment. This was a period when there
was a wide divergence in estimates of Soviet capa-
bilities. The differences led to equally different
conceptions of the foreign policies required to avoid
global hostilities, and, to the extent that these
differences could be resolved by careful examination
. and analysis of the Soviet economy, a major contri-
bution to the nation's policy decisions would be
items, albeit at increased costs. Initiated in
November 1951, this project was ultimately published
as EIC-R-3, Generalized Assessment of Economic
Damage to the Soviet Bloc in the Event of a Com-
plete Severance of East-West Trade, 31 August 1953,
S. This paper was an early expression of this Of-
fice's continuing effort to dispose of the "bottle-
neck fallacy," i.e. the illusion that if a target
country can be denied access to particular key com-
modities -- whether by trade controls, or by more
violent denial methods -- its economy and its war-
making capabilities will be significantly limited.
Operational advocates of such methods have con-
sistently exaggerated their effectiveness and un-
derrated the resiliency of both modern and primi-
tive economies in overcoming interdiction activ-
ities. (See Volume II, chapter on Vietnam.)
55
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made.
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a start was made in this direction
in the
era. The differences -- although
(b)(3)
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-- would
narrowed
continue,* however, and the re-
Fl
sponsibilities
of ORR to resolve them would grow.
was able to turn over to his successor
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t
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fl
a going organization with a sense of mission --
again no small accomplishment when looked at in the
light of the demoralized group that he had taken
I _ I
J
7
over only a year before. The morale problem had
evaporated when absorbing tasks had been laid on .
and each individual had been convinced that he had
a contribution to make. The intelligence commun-
ity's resources had been organized behind the Of-
fice through the EIC mechanism. Most important,
effective personnel management, including recruit-
ment, had started to surface a group of profes-
sionals, both economists and technical specialists,
that would provide an effective cadre for the tasks
that lay ahead.
* See IX, below-
56
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Chapter III
1952�THI YEAR
"It snows in Moscow, too."
(on the occasion of a federal workers' "snow"
holiday)
�
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CHAPTER III
1952 - The
Year
was succeeded on 17 March 1952 as
Assistant Director, ORR, by
had had a distinguished military record
in
World War II, rising from the rank of private to
colonel in the Corps of Engineers. Following the
war he returned as Professor of Law to Harvard Law
School, from which he had graduated in 1938. He
came to the Agency at the behest of
the newly appointed (1 January 1952) Deputy
Director for Intelligence (DDI), with
standing that he would succeed
post. 55/ This succession occurred on
Since
the under-
in that
1 May 1953.
was named Assistant DDI on 23 February
1953, he served as AD/RR for less than a year.
Not an economist,* he did much less than his
predecessor to influence the substantive product
of the economic research divisions in the Office
during his tenure. His administrative influence,
* � An unsuccessful effort was made to find a
"name" economist to serve as deputy.
Among those who were approached but were, for one
reason or another, unable to accept were
58'
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(b)(6)
(b)(3)
(b)(6)
(D)(i)
(b)(6)
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(b)(6)
(b)(3) �
(b)(6)
(b)(3)
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I
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fl
fl
however, both as head of ORR and later as DDI for
nine years, was a significant factor in setting
the Office's course during that period and in
establishing the Office's stature in the intel-
ligence community.
A. Organizational Changes
1. The Break Up of the Analysis Division
Upon reporting for duty,
was faced
with a number of organizational suggestions, pre-
pared at his request, by key people in the
Assistant Director's Office. Of these the most
significant was probably that submitted by
an economist who had come to the
Office in June 1951 from an assistant professorship
at Yale.
after noting the shortage of
professional economists in the top supervisory
positions of the Office, suggested that the dif-
ficulty in recruiting top-flight research econo-
mists might be alleviated by a clearer separation
of the basic research and analysis function from
the operational support function. 56/ These two
functions were at the time combined in the Economic
Analysis Division.
59.
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The The Analysis Division had, in fact, until just
before
arrival been even more of a hodge-
podge. Its Techniques and Methods Branch
had been taken out
and elevated to the division level in January 1952,
leaving three branches which handled the Agency's
economic defense responsibilities and two -- the
Economic Capabilities Branch and the Economic
Strategy Branch -- doing research and analysis in
pursuit of the main economic intelligence objec-
FT �
tive: the economic capabilities
and vulnerabili-
ties of the Soviet Bloc.
proposed that this
(b)(3)
FT
(b)(6)
latter activity was worthy of division status,
L.
while the economic defense branches, being involved
primarily in operational support, should also be
established under a separate division. This pro-
posal was duly acted upon, and the Economic Defense
Division became a reality on 1 June 1952. The
Analysis Division was reconstituted with four
branches: Capabilities, Budgets and Plans, Economic
Surveys, and Economic Accounts. The Economic
Accounts Branch was the temporary home of ORR's
Estimate File.*
See VI, B, below..
�
60
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2.
The Establishment of Areas
vim �
Another proposal made by
called for
(b)(3)
(b)(6)
a Deputy Assistant Director for Research with "ulti-
mate responsibility and authority for formulating,
directing, and reviewing the overall research pro-
gram of ORR." 57/ At the same time there was
another memorandum
changes on
Directors --
of suggested organizational
desk, calling for three Deputy
one each for Administration, Operations,
and Research. .5.1/ Both proposals suggested special
staff support for the DAD for Research in the form
of senior advisers primarily for the review of
papers, for, as
expressed it, "Division and
branch chiefs have, of necessity, �too many vested
interests in the research products of their shops
to provide detached critical review."* 59/
Although
accepted neither of these
proposals as they stood, he adapted them, pre-
sumably with the advice and counsel of others in
61
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the Office, into a fundamental reorganization,
which had two major objectives: to reduce the
span of control and to provide expert substantive
guidance for the economic research activity.
These were accomplished by grouping the Divisions
into three Areas, thus reducing to three (from, 14)
the number of units reporting to him, as follows
(see also Attachment E):
� ECONOMIC RESEARCH AREA (ERA)
Analysis Division
Industrial Division
Materials Division
Services Division
Reports Division
Techniques and Methods Division
Strategic Division
�GEOGRAPHIC RESEARCH AREA (GRA)
Geographic Division
Cartography Division
Map Library Division
Photo Intelligence Division
' COORDINATION' AREA
Economic Defense Division
Basic Intelligence Division
EIC Secretariat
The heads of the Geographic Research Area
(b)(3)
(b)(6)
and the Coordination Area were
and
who had been Chief, Geog-
.raphy Division, .and Secretary of the EIC,
62
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T.
L
LI _
L
(b)(3)
(b)(6)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
respectively. The search for an experienced econ-
omist to head the Economic Research Area culminated
with the selection of
did not, however, report for
duty until May 1953, after
post of DDI and
had assumed the
had become AD/RR.
B. � The Initiation of Research on Communist China
It was during
tenure as AD/RR that the
first major effort was made to tackle the problem
of Communist China. The DCI had noted in a memo-
randum to the IAC on 13 August 1952 that serious
deficiencies existed in the intelligence effort
devoted to Communist China -- among them the in-
adequacy of the research program. In response,
ORR set up a Working Group under the chairmanship
of of the Industrial Division for
the purpose of assembling the readily available
information on the Chinese economy as a preliminary
basis for an Officewide study, tentatively desig-
nated as ORR Project 0.3, The Economy of Communist
China. By January 1953, �ORR had the equivalent of
analysts working on China's economy compared
State. LO_./
with
.*� As an Indication of the suitability of these
appointments, it should be noted that each of
these men later served as head of the Office.
(b)(1)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
63,
� S-ST
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To guide
the effort on Communist
(b)(3)
China,
recruited
a former OSS
()�(5)')
(b)(6)
Lj
anlyst who had had extensive experience and long
(b)(3)
(b)(6)
f-n
residence in China
came to ORR in December 1952 and was attached
first to the Office of the AD/RR and later to the
Planning and Review Staff to plan, coordinate, and
oversee the economic research on Communist China.
64
(b)(1)
(b)(3)
(b)(3)
(b)(6)
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The initiation of research on Communist China
fl
,
7-1
In
followed a procedure not dissimilar to that on
the Soviet Union. That is, the first step was an
Inventory of Gaps and Deficiencies in Information
on the Economy of Communist China. The next was
the assignment of an Officewide comprehensive
report (Project 0.3, The Economy of Communist
China). A China Committee was established under
the chairmanship of
in order to provide a
coordinated approach to the study of the Chinese
economy and to review research.*
The long-awaited first Officewide project on
Communist China was produced in December 1953 as
a contribution to NIE 13-54, Communist China's
Power Potential Through 1957. 61/
* No record of this Committee's activities has
been found, and it does not appear to have been
effective. In 1954, Services Division set up its
own China Committee, which proved a useful device
for training and briefing purposes and provided a
mechanism for coordinating the Division's research
and reporting activities on the Chinese Communist
logistical activities along the Formosa Strait
during 1955-56 (see VII, C, 1, below). The
�
Services Division China Committee became an area-
wide function in August 1962, but it has been in-
active since research on Communist China was con-
solidated in a separate Division (1 November 1967).
65
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66
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C. The Jurisdictional Conflict with the Department
of State
Early in
tenure there appeared the first
indications that the Office of Intelligence Research
of the Department of State would challenge �RR's
primary role in economic research on the Sino-Soviet
Bloc. A State Department officer is reported to
have claimed in March 1952 at a joint meeting that
(b)(1)
(b)(3)
� (b)(1)
(b)(3)
(b)(6)
"we in OIR have always exercised primary responsi-
bility for Soviet budget analysis ."'66/
This was later described by as one of "a ODA
0:0)
series of minor guerrilla actions" between ORR and
State, to which was added an instance of competitiva
hiring by State and a number of occasions on which
� � �
State attacked economic contributions by ORR to
NIE's and other
finished
intelligence. In a memo
to the DDI,
accused State's intelligence
(b)(3)
1.7
people of "setting
themselves up as a Board of
(b)(6)
67.
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Review demanding as the price of their concurrence
step-by-step demonstration of the validity of ORR
conclusions." 67/
(b)(1)
(b)(3)
He concluded
by predicting that it would ultimately be necessary
to amend NSCID 15 so as to exclude State from
responsibility for economic intelligence on the
Soviet "Orbit" �or authority to produce it.
The amendment did in fact occur after long nego-
tiations extending through 1953 and 1954. The
issue appears to have come to a head over CIA's
assumption of responsibility for producing the
economic sections of the NIS on Sino-Soviet Bloc
countries. In May 1953, CIA advised State, Agricul-
ture, and Interior that it planned to terminate
financial support to the production of portions of
,Chapter VI, Economic (Sino-Soviet Bloc Areas),
beginning with fiscal year 1955.* A disagreement
ensued with the State Department as to whether CIA
would take over the full responsibility for all the
(b)(1)
.(b)(3)
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AtET
Li
economic sections on the Bloc, since State desired
to hold on to the introductory sections (Section 60)
and the trade and finance sections (Section 65).
This desire was an expression of State's position
with respect to Bloc economic intelligence in
general -- that is, that State should have responsi-
bility for "economic policies, economic organization,
overall economic trends, foreign economic rela-
tions ..." 69/ while CIA should have the balance (less
those military-economic subjects allocated to the
Department of Defense). This State Department view
was conveyed to the DCI with the plea that the
Department must retain responsibilities for the
areas indicated because of its policy formulation
and operational responsibilities. 70/
now the DDI, took the view, on the other (b)(3)
(b)(6)
hand, that State was cutting the pie so that CIA
should be the "parts and sub-assembly contractor"
with State remaining the overall "architect," and
this was despite the fact that the Agency had in
ORR 90 percent or more� of the competence in the
field. He also objected to State's proposal that
the EIC should be responsible for the contributions
to National Intelligence Estimates on Bloc capabili-
ties.
69
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These were, of course, reflections of ORR views
on the matter. The Office had previously made the
point that fundamental problems would be created by
any artificial separation of research responsibility
in economic intelligence. State's proposal would,
for example, separate research on standards of
living from research on consumption goods such as
food and agricultural products and research on
Soviet plans and goals from research on performance
of sectors of Soviet industry. 72/
D. ,The Drafting of * DCID 15/1 .
On 3 August 1954 the issue was passed to the
EIC for solution, and a working group was established
to draft language that would be acceptable to all.
Five sessions were necessary to produce a final
result, with the military members supporting the
State Department in its demand for the ultimate
responsibility for "political-economic" intelligence.
The language that emerged reflects this demand, but
in practice it gave working responsibility to CIA
in a way satisfactory to ORR.
DCID 15/1, Production and Coordination of Foreign
Economic Intelligence, was formally issued on 14 Sep-
tember 1954. Its operative paragraph -- Para-
graph (2.) -- entitled "Allocation of Primary
70
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F.ercit'ET
71
Production Responsibilities," as finally accepted
by all concerned, was as follows:
a. Production of military-economic
intelligence on all foreign countries,
including by way of illustration intel-
ligence on military requirements, military
materiel production, shipbuilding and
ship movements, logistic capabilities,
economic vulnerabilities to all forms of
military attack, and target system analysis
(including specific location, physical
vulnerability, and supplementary studies
as required), is the responsibility of the
departments of the Department of Defense.
b. Production of intelligence on all
foreign countries on economic doctrines,
political and social aspects of economic
organizations and institutions such as
trade unions, and on the relationships
between political and economic policies,
is the responsibility of the Department
of State.
c. Production of all economic intel-
ligence on the Soviet Bloc is the respon-
sibility of the Central Intelligence
Agency except as indicated herein. In
addition, it will supplement the intel-
ligence produced by other agencies by
conducting such independent analyses and
studies as may be necessary to produce
integrated economic intelligence on the
Bloc.
d. Production of all economic intel-
ligence on foreign countries outside the
Soviet Bloc is the responsibility of the
Department of State except as indicated
in paragraph 2.a.
e. Despite the above mentioned
allocations of primary production re-
sponsibilities, there will be areas of
common or, overlapping interest (includ-
ing, for example, Soviet Bloc economic
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policies, East-West trade, and inland
transportation) which will require con-
tinuing interagency liaison and coopera-
tion.
f. The existing allocations of pro-
duction responsibility for National
Intelligence Surveys (NIS) are not changed
by this directive even though such allo-
cations may, in some instances, be at
variance with agency responsibilities
specified in paragraphs 2, a, b, c, and d.
�However, the EIC will from time to time
examine such allocations and after con-
sulting with the NIS Committee will make
appropriate recommendations.
Subsequent revisions of this basic charter for
the production of economic intelligence appeared
in DCID 3/1, which has had three versions:
10 June 1958, 25 July 1963, and 23 April 1965. The
latter two revisions were primarily for the purposes
of recording the establishment of the United States
Intelligence Board (USIB) and the transition of
functions from the
departments to the
respectively. The
10 June 1958 added
lapping interest two new
studies of Bloc military
Bloc economic activities
individual service intelligence
Defense Intelligence Agency (DIA),
initial change to DCID 3/1 on
to the areas.of common or over-
subjects -- "economic cost
programs" and "Sino-Soviet
in non-Bloc areas." These
subjects were already growing rapidly within the
scope of ORR's research activities. In addition,
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�the subject of Bloc "economic doctrines" was also
included as an area of common interest and dis-
appeared from the subsection describing the
Department of State's responsibilities.
-
1-7
_J
!
r'
73
(b)(1)
(b)(3)
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LJ
H
(b)(1)
(b)(3)
P.
Accomplishments of the Year
(b)(3)
(b)(6)
Perhaps
the most important accomplishment of
brief tenure as AD/RR was the creation of
(I;)(3)
(b)(6)
a management structure for the future. The organi-
zational developments outlined above proved to be
both durable and flexible as the economic intelli-
gence mission was elaborated. The selection of
leaders for the major components of the Office
provided an effective team for the stewardship of
this mission for the next 13 years -- until
74
(b)(3)
(b)(6)
(b)(1)
(b)(3)
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fl
77
scheduled including the first effort on Communist
tious, was an extension of the
about the nature of the economic
and laid the groundwork
analytical projects and
which characterized the
economy.
The research program drawn up under
direction in the fall of 1952 was
retirement at the end of 1965.* Finally, a research
program was laid on which, although overly ambi-
decisions
intelligence task
for a number of basic
the aggregative analysis
assault on the Soviet
an attempt to
complete the long-overdue projects and fill in
the gaps in economic intelligence as revealed by
the "Inventory of Ignorance." Each item in the
Standard Classification of Economic Activities was
analyzed and classified as to its significance in
the national intelligence picture, and several
hundred projects were accordingly laid on to
ensure coverage of all critical and important
items and to develop "a balanced integrated attack
by the Office as a whole on the economy of the
Bloc." 21/ In addition to the item-by-item re-
search program, seven Officewide projects were
* The last of the three Area Chiefs selected by
75
(b)(3)
(b)(6).
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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-C-ftST
�
E
L_
China and another major effort on East Germany.
The Soviet economy was to be subjected to a regional
analysis, a study of strategic stockpiling, an
analysis of traffic on the Trans-Siberian Railway,
and a major 15,000-hour effort at structural (inter-
industry) analysis. The last of the Officewide
projects was a response to a request frpm WSEG for
a study of input requirements of selected military
items. The Communist China and East German papers
were ultimately issued as contributions to NIE'sr
and the others were eventually published in some
form or other -- for example, a series of stock-
piling reports and regional studies issued over
the next several years.
(interindustry analysis)
The input-output study
was published in 1955.*
Thus in year
the Office had started on
(b)(3)
a creative analytical effort
mere assembly and interpretation
economic pronouncements
that went beyond the
of official Soviet
(b)(6)
(b)(1)
(b)(3)
ORR was the first national intelligence
research organization to make independent estimates
of Soviet production of goods and services and to
attempt a consolidation of these calculations into
* . See VI, C, '1, below..
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JQET
national accounts leading to the estimation of
gross national product and national income. The
effort both benefited from and stimulated academic
research in this field, as attested by the later
published work of such early ORR luminaries as
(b)(3)
(b)(6)
77
SE T
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SAZTT
Chapter IV
THE ESTABLISHMENT OF THE ECONOMIC
RESEARCH AREA
and I are both convinced that it will
not be easy to ... put ORB on an all-source basis."
(b)(3)
(b)(6) '
(b)(3)
�(b)(6)
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SERT
CHAPTER IV
The Establishment
of the Economic Research Area
_
L
fll
the Geographic
When
moved up to the DDI's office on
23 February 1953 he was succeeded as AD/RR by
the recently appointed Chief of
had been
Research Area (GRA)
a professional geographer since receiving his Ph.D.
from the University of Michigan in 1933 and had a
major role in developing the Department of State's
cartographic and geographic research organization
during World War II. Late in 1945, most of this
organization was merged with the OSS Map Division,
including Sits cartographic facilities, to form the
Map Intelligence Division under
leadership
within the Department of State's intelligence
organization. The activity of this Division was
considered a service of common concern to the in-
telligence community and, by agreement between
State and the then DCI, Admiral Hillenkoetter, the
entire Division was transferred to CIA in December
1947.
remained the head of the cartographic
and geographic research effort in this Agency under
ORE and later in ORR.
79
� (b)(3)
(b)(6)
(b)(3)
(b)(6)
(0)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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RST
LJ
(b)(3)
tenure as AD/RR lasted until his re-
(b)(6)
tirement in December 1965. Thus it covered most
of the period of ORR's existence. back-
(b)(3)
(b)(6)
ground as a professional geographer rather than as
an economist naturally caused him to devote less
attention to the substantive leadership of the
economic intelligence effort, and the ORR phase of
this history from this point on becomes largely a
history of the Economic Research Area
Office under the leadership of
rather than of ORB as a whole.
(ERA) of �the
considerable
contribution to the success of the CIA economic and
strategic intelligence effort is perhaps best re-
vealed in his persuasive and diplomatic handling of
coordination problems both within and outside of
the EIC mechanism, which contributed to the steady
growth of the Agency's stature as the prime pro-
ducer of worldwide economic and strategic intel-
ligence.*
There were several significant personnel addi-
tions during the first several months of
career as a geographer and his major
contributions to intelligence in this discipline,
including an early recognition of the potentials
of aerial photoaraohv. are beyond the scone of
this history.
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(1)
(b)(3)
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jE.OtErr
tenure. Although established on paper in August
1952, the Economic Research Area was not actually
effective as a consolidated unit until
re-
ported for duty as Chief of Research in May 1953.
(b)(1)
(b)(3)
(b)(6)
81
(b)(3)
(b)(6)
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Other individuals joining ORR in 1953 who had
a significant impact on economic intelligence
activities in the Agency included:
r--
82
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(b)(6)
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�CrIZET
fl
A. Organizational Developments
The principal organizational chore facing
was the establishment of the entire ERA as an all-
source research operation. The mechanics -- that
is, the security clearances, increased physical
security measures, and the like -- had largely
been accomplished because it had been intended
from the start of ORR that all-source intelligence
was to be achieved as soon as possible. That this
had not been done until
came to the Office
is attributable to the mystique which had developed
concerning the special skills believed necessary
to exploit communications intelligence. The
leadership of the Strategic Division (D/Z) had been
active in promoting the idea that these skills were
unique and that it would dilute the integrity of
the product to scatter the staff -- so carefully
(b)(3)
(b)(6)
(b)(3)
(b)(6)
recruited and trained -- among the other
These attitudes did much, of course, to
esprit de corps among the members of the
Division but also to create a strain in its
divisions.
foster an
Strategic
rela-
tionship with the other divisions. When
(b)(3)
(b)(6)
turned over ORR to he pointed out
the morale
(b)(3)
fl
problem posed by the Strategic Division.
During
(b)(6)
year as AD/RR, however, he did not
feel
(b)(3)
(b)(6)
_
83
S ET
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p-GRIT
that the time was appropriate for its merger with
the other economic divisions.
f
When
became AD/RR, he determined, with
blessing, to take such action as rapidly
as possible.
of course, agreed because
both believed that the Office product would never
be respected as long as it was issued in two ver-
sions with frequent disagreement. 'To delay the
establishment of one all-source research center
speaking with one voice would only worsen the
situation.
Raving received the green light from
they moved almost immediately to eliminate
the Strategic Division and assign its personnel
throughout the ERA, which henceforth would produce
only all-source intelligence. 77/
The dispersal of the people who manned the
Strategic Division was a stormy episode in the
history of ORR. The division had come to the
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(61
(b)(3)
(b)(6)
Office as a unit from
OBE's General
Division. Its
personnel, originally
had grown to more
(b)(1)
(b)(1)
(b)(3)
(b)(3)
than
analysts who were specially recruited and
fl
trained in the techniques of using and exploiting
communications intelligence. With such a large
proportion of relatively new recruits who worked
behind barriers physically set apart from the other
84
S T
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SEQRT
economic divisions with access to their own esoteric
and highly classified sources, �the division had
developed a sense of exclusiveness which the amalga-
mation would, of course, dissolve. Even though the
Strategic Division was never intended to be a per-
manent fixture but merely a holding operation pending
the establishment of an all-source center, its
dissolution was not readily accepted by a number
of its personnel.
The amalgamation process, involving the
�
L
relocation of more
than professionals
among
(b)(1)
(b)(3)
the four economic divisions, was worked out between
July and September
1953, with the major
staff work
accomplished by
Deputy Chief of
(b)(3)
the ERA, and
chief liaison
(b)(6)
D/Z's
F-1
officer
with
the National Security
Agency (NSA).
1-1
�
became Chief of a newly formed Support
(b)(3)
(b)(6)
Staff within ERA, whose function it was to continue
liaison with NSA and provide guidance to the new all-
source research center on the security and technical
aspects of the new source material. An addition to
the Planning and Review Staff was also effected
with the addition of D/Z's Special Support Staff,
renamed the Current Intelligence Support Group.
85
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SEQT
This was the predecessor of the Current Support
Staff, which emerged in 1955 on the basis of an
agieement between the AD/RR and the AD/CI for the
coverage of current economic intelligence on the
Sino-Soviet Bloc.*
A small minority of D/Z personnel resigned in
protest over the move; others transferred to other
Offices in the DDI or moved to one of the other
directorates.
Of those who remained in ORR,
on to productive careers, including
efforts to smooth the transition and create
a number went
whose
an
effective all-source center were finally rewarded.
Others who did much to promote this goal included
The latter was put in charge of a training course --
immediately dubbed
analysts with the techniques of using the new source
material.
Other D/Z alumni who have distinguished them-
selves in Agency careers, either in ORR or elsewhere,
See V, B, 1, below.
86
-- to familiarize
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
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F,e'RET
Th
_
fl
87
(b)(1)
(b)(3)
(b)(6)
LJ
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fl
r;
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.reftET
Other organizational developments during the
first year of ERA's operation were minor. The
Techniques and Methods Division
was
moved from the ERA to the Coordination Area in
August 1954. This left four basic economic re-
search divisions as the substantive core of the
Economic Research Area, which was able until 1962
to adjust to changes in mission and stringent per-
sonnel availability by the shifting of personnel,
by occasional revisions of the branch-level structure,
and by the establishment of task forces to deal
with specific problems.
The following staff structure within the
Economic Research Area was also established to
provide support:
The Planning and Review Staff (St/PR)
was responsible for planning and monitoring
the progress of the research program and
for making appropriate revisions therein
in response to changing requirements. It
also drew up policy and procedural manuals
and provided substantive advice, assistance,
and review to the divisions and the Chief/
Economic Research. Liaison with ONE and
OCI was maintained in this staff. It also
took over for a brief period the personnel
and functions of the Economic Accounts
88
(b)(1)
(b)(3)
(b)(1)
(b)(3)
S � ET
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SE.610ET
Branch of the Analysis Division -- that is,
the maintenance of the Economic Estimates
File.
El
The Publications Staff (St/PB) was
the successor.to.the old Reports Division
and as such was responsible for editorial
review, coordination, security clearance,. I
sanitization, and final publication of
ERA reports.
The Support Staff (St/S) was estab-
lished to review source materials being
exploited in the ERA with particular
reference to Special Intelligence.
Accordingly, it maintained liaison with
NSA and was responsible for requirements
levied on that Agency and for the security
handling of the special source material.
B. Research Programming
(b)(3)
The second major problem facing was to
ease the logjam of scheduled intelligence produc-
tion under the existing research program. The
(b)(6).
(b)(3)
accomplishment of "Inventory of Ignorance"
(b)(6)
had occupied a
of ORR's first
large part of the research effort
two years of operation. Filling
the gaps in economic intelligence revealed by this
exercise was the purpose of the research program
laid
on by in the fall of 1952 for the
(b)(3)
Ffl
(b)(6)
period October 1952 - December 1953.* This program
proved
to be unrealistic. Based on a T/0 of about
professionals and an assumed 47 percent of the
(b)(1)
(b)(3)
L
7
See III, F, above.
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p.GRST
L_J
analyst's working time available for research, it
1-7
r'
,
called for
rojects to be completed over a
15-month period. In fact, however, the peak number
of professionals in the ERA Divisions during 1953
was only
and it was found that to expect that
47 percent of an analyst's working time would be
used for research was an impossible goal.*
Even if the ERA had been able to do the neces-
sary research, analysis, �and writing to produce
finished intelligence reports in a year and a
quarter, the work load imposed upon the Publication
Staff and the Printing and Reproduction' Division
would have been far beyond their capabilities.**
The unrealistic nature of this attempt at re-
search programming was not long in surfacing. Few
projects were ready for editorial processing by
their assigned due dates, and those that were
ready found a logjam already existing
90
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(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(6)
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SECET
(b)(1)
(b)(3)
fl
Accordingly,
recognized soon after he took
office that the research program would have to be
reduced to a realistic A new program was
drawn up which called for the cancellation of
projects and the deferral [in many cases tantamount
to cancellation] of For the seven-month period
from December 1953 through June 1954,
were scheduled, including
projects
transferred from the
previous program. Although a number of these
latter projects were also deferred or canceled,
additional projects were laid on during the course
of fiscal year 1954. This program proved much more
manageable, and the experience gained in its formu-
lation
annual
became
and execution proved most valuable to the
program planning process which subsequently
an important feature of the administration
of economic intelligence research. By 1 July 1954,
(b)(3)
(b)(6)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(0)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
of the rojects
(b)(3)
laid on in the revised program
(b)(1)
and subsequently,
had been completed,
were (b)(3)
canceled, and
were
carried over into fiscal
(b)(1)
(b)(3)
year 1955.
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In several respects, 1953 was a key year in
the administration of economic intelligence re-
search. The appointment of a professional economist-
administrator as Chief of Economic Research had
been quickly followed by the reorganization which
eliminated the redundancy of a double-barreled
research team attacking similar problems from two
vantage points. The program of research was drasti-
cally pruned to a realistic level. These adminis-
trative measures were necessary forerunners to the
new look which was given to ERA's main substantive'
responsibility, the assault on the Soviet economy.
They also set the stage for the development of
management procedures within the ERA, enabling it
_
to mount that assault successfully
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JEGRErr
Chapter V
MANAGEMENT OF ECONOMIC INTELLIGENCE PRODUCTION
"The fact is that the number of officials and the
quantity of work to be done are not related to
each other at all...
(b)(3)
(b)(6)
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CHAPTER V
Management of Economic Intelligence Production
By 1954 the formative period of ORR can be said
to have ended and a more orderly "developmental"
period commenced. What had amounted to an annual
change in leadership was over, and the organization
was stabilized with only minor changes taking place
over the next eight years. In addition, 1954 saw
the issuance of DCID 15/1 (14 September) which gave
the Agency and the Office clear authority.to pursue
economic intelligence on the Sino-Soviet Bloc.*
From this point on the Office history was to be
determined less by internal growing pains and more
by external events. It was in 1954, for example,
that significant work was started on the economic
aspects of Soviet guided missile production, and
in the following year Soviet economic activities
in the underdeveloped countries of the Free World
�started to require a significant research and
analytical effort in the Office. The brief period
of Malenkov's ascendancy in the USSR after Stalin's
death was succeeded by an equally brief term for
*. See III, D, above.
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the two-headed leadership of Bulganin and Khrushchev,
and finally by the emergence of Khrushchev alone.
Each change of leadership called, of course, for
a reassessment of Soviet economic policy, plans,
and prospects.
In order to become more responsive to the de-
mands of policymakers and other elements of the
intelligence community for economic judgments linked
to developing external events, the exercise of
managerial skills and planning at the Area level
was required. Although it seems to have been the .
intention of those suggesting the appointment of
a Chief of Economic Research in the early 1950's
that he would occupy a sort of "ivory tower" in which
the substantive issues of economic intelligence
would receive the full attention of the Chief and
his immediate staff, uninterrupted by administra-
tive duties, this concept proved illusory. The
Office of the (Assistant) Director and his staffs,
of course, supplied all the essential administrative
services, but there was another category of adminis-
trative activity, perhaps best described by the term
"substantive management," that could be performed
only by those directly responsible for the sub-
stantive product of the Area. These included the
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planning and programming of research activities,
the organization of the Area to meet the shifting
demands for intelligence production, and the re-
cruitment and training of analysts.
Much of this management activity in the Economic
Research Area was from September 1954 until January
1962 under the day-to-day direction of
who succeeded as Deputy Chief, ERA,
in September 1954. had had extensive ex-
perience in. the economic rehabilitation of Western
Europe following World War II
half years with ORR,
During his seven and one-
was particularly active
in the development of the special recruiting effort
and in other aspects of personnel management. He
also participated, of course, in the substantive
review of projects. Although there was no formal
division of substantive review responsibilities at
the Area level, his background in transportation
economics naturally was brought to bear in this
field.
left ORR early in 1962 to join the
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(1)
(b)(3)
(b)(6)
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1_ 1
With his departure, the (b)(3)
0:0)
post of Deputy Chief, ERA, was allowed to lapse.
A. Research Programming
1_1
L_J
The tasks laid on by the initial effort at
formal research programming in 1952 under
proved beyond the capabilities of the Area. The
second
manly to put that program on a realistic basis.
effort, in December 1953, was designed pri-
Since it covered only the period through June 1954,
the first full-year program for the new Economic
Research Area was that put forward for FY 1955
(July 1954 to June 1955).
The FY 1955 program was built around three
basic factors. These were (1) anticipated NIE
requests; (2) the newly acquired responsibility
for the production of NIS,eConomic chapters
(Chapter VI) for all Sino-Soviet Bloc countries;
and (3) the recommendations of the panel of con-
sultants who met with ORR in the spring of 1954.
The first two of these factors became, in fact,
the bases for program planning for the next decade,
while the third, which consisted of substantive
suggestions, also influenced the thinking behind
research planning for a considerable period.
* See IV, B, above.
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(b)(6)
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From FY 1955 through FY 1967, the annual research
program planning exercise was an important ERA
management activity involving the Ch/ERA, D/Ch/ERA,
St/PR, the division and branch chiefs, and often
the analysts as well. In retrospect, the procedures
and the programs themselves appear to be excessively
detailed, but the unfortunate logjam and agonizing
reappraisal created by the initial programming
effort for calendar year 1953 undoubtedly played a
1_1
role in the development of these procedures. Then,
too, programming seemed the only way to assure that
adequate time was reserved for the increasing
number of anticipated support functions to which
the Area was becoming committed.
Planning or the economic research program for
each fiscal year began in the preceding January.
The known and anticipated direct support contribu-
tions for the coming fiscal year to NIE's, NIS's,
DDP, the export control program, the USIB Committees,
and other elements of the intelligence community
were compiled by the Planning and Review Staff
as a matter of first priority. Early in February
this compilation of direct support requirements was
provided to each branch of the ERA to ascertain its
estimated requirement of research time for such
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commitments. Meanwhile, the Chief of Economic
Research and the Division Chiefs reviewed sugges-
T-
tions for Areawide projects, and a selection was
made of those which appeared to be most useful.
The branches then estimated the research time they
.40
would require for their portions of the 4reawide
projects. Recognizing the need for allowing a
F'
substantial amount of unassigned research time for
� anticipated but as yet unidentified support projects,
each branch then developed proposals for self-initiated
branch projects in areas that appeared to require
attention. These three elements r- support projects,
fl
Areawide projects, and self-initiated projects -- thus
E
L J
constituted the proposed branch programs which were sub-
mitted for review early in March.
During March the Chief of Economic Research met
with all professional members of each branch to
discuss the proposed programs. At this time the
performance of the branch during the current fiscal
year was discussed, the program for the remainder
of the current fiscal year was reviewed, and the
proposals for the next fiscal year were critically
examined. The Chief of Economic Research then
decided what projects would be included in or ex-
cluded from the branch program.
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The Area research program for the coming
L J
fiscal year was then agsembled with supporting
text and tables, and the draft was submitted first
to the Chief of Economic Research and then to the
AD/RR for approval. This draft was then distributed
to the DDI, to other components of the DDI, and to
the DDP for review and comment. After such comments
were received, they were circulated to appropriate
elements of the Economic Research Area for study
and consideration in preparing the final program.
The target date for publication of the program was.
1 July.
Although the program was considered flexible
and estimates of research time required for indi-
vidual projects were only approximate, the several
categories of allocated research time followed a
pattern characterized over the years from 1955 to
1965 by 25-35 percent for NIE contributions,-T
10-20 percent for NIS contributions, 10-20 percent
for miscellaneous support projects, and 30-40 per-
cent for self-initiated projects. Each category
presented its own characteristics and problems as
described below.
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1. NIE Production
There were several major NIE's that re-
curred with sufficient regularity to warrant pro-
gramming in advance. These included a number on
the Soviet Union -- not only the annual general
_.1
Ti
�
ri
overview but also others
jects such as the Soviet
capabilities, long-range
addressed to specific sub-
economy, Soviet military
attack capabilities, etc.
China and the European Satellites also were almost
certain to receive annual attention, as were a
number of important Free World countries that had �
significant economic contacts with the Bloc coun-
tries. Unscheduled NIE's in response to changing
international problems had to be allowed for as well.
In short, support of the Office of National Esti-
mates usually formed the core of the ERA's research
program -- not only in allocation of research time,
ranging from one-quarter to one-third, but also in
setting the tone of the remainder of the program.
This reflected the belief that the estimates --
programmed and unprogrammed -- provided the best
guidance within the intelligence community to the
major policy concerns of the government.
L
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The annual Soviet estimate, calling for an
overall assessment of the economy, typically evoked
an Areawide contribution, fashioned by the USSR
Branch of Analysis Division (A/U) from subsidiary
contributions of all the remaining branches in the
ERA, except the European Satellites and Far East
Branches. The programmed workload totaled thousands
of hours. For example, the scheduled allocation
of man-hours for ORR's economic contribution to
NIE 11-4-58, Soviet Capabilities and Probable Course
of Action Through 1963
(b)(1)
(b)(3)
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El
The resulting estimate carried only
seven and a fraction pages of economic material
(plus two paragraphs in the summary). 80/ This
drastic distillation of wisdom should not, however,
be regarded as the labor of mountains in the
bringing forth of a mouse.* The research effort
usually resulted in other published reports. In
this case, subsequent reports on Soviet economic
prospects for the Seven-Year Plan period 81/ and
on the 1957 industrial reorganization 82/ were
issued, and a number of branch reports on individual
sectors of the Soviet economy can be attributed
directly or indirectly to the efforts put forth
for the estimate. The judgments which found ex-
pression in the public speeches and Congressional
* ORR's first major NIE contribution, Pro
6-51. The Euronaan Satellite Power Complex
The resulting NIE, No. 33,
Soviet Control of the European Satellites (short
title), 7 Nov 51, TS, carried two and one-half
pages of economic material.
(b)(1)
(b)(3)
(b)(1)
(b)(3)
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r-
(b)(1)
(b)(3)
L_
testimony of the DCI concerning Soviet economic
growth during this period als0 resulted from these
efforts.* Thus the "spin-off" from the more than
man-hours devoted to the annual Soviet
estimate was considered to have justified the
effort. A similar pattern characterized the pro-
grammed research effort on Communist China and
the European Satellites and adds weight to the
judgment that the NIE support function of the ERA
provided the core of the research program.
In addition to programming NIE contribu-
tions for the annual major country studies and
Bloc military capability studies, ERA also pro-
grammed research projects on other areas and
subjects which, in its judgment, could give it
the potential to respond to ONE or other consumer
requests which might be called fort on an irregular
basis or which might arise from chronic trouble-
spots (for example, in the 1950's Berlin and the
Taiwan Straits). In the FY 1961 program, for
example, an Areawide project had been laid on to
study Communist China's long-term dependence on
outside areas for its industrial development. The
developing breach in Sino-Soviet relations made
* See VIII, below.
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it apparent that a brief and more timely assess-
ment of China's dependence on the Soviet Bloc
would be needed. Such a study was accordingly
scheduled; it drew, of course, on research
already in progress for the longer range study.
2. NIS Production
The second major support activity taken
on by the ERA that had to be allowed for in the
annual research program was the production of
Chapter VI, Economic (Sino-Soviet Bloc Areas) of
the National Intelligence Survey. This responsi-
bility was formally transferred to CIA from State,
fl
7:7
:
En
Agriculture, and Interior on 1 July 1954 as a
logical development of the Agency's preponderant
role in the production of economic intelligence on
the Bloc.*
The programming of NIS production should�
have created no particular problem for ERA's plan-
ners, because the contributions were scheduled well
in advance by OBI's planners.** However, the
It,was State's attempt to retain responsibility
for Sections 60 and 65 (Introduction and Trade and
Finance) that led to the adoption of DCID 15/1,
spelling out responsibility in this field. See
III, C and D, above.
** The Office of Basic Intelligence (OBI) had
been created in 1955 from ORR's Basic Intelligence
Division following the recommendations of the
Clark Committee.
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amount of research time allocated to this activity
fluctuated between 11 and 18 percent, and thus it
could be a considerable burden to those branches
that were heavily committed elsewhere or that
needed a large segment of unallocated time to cope
with "flaps." Efforts were, of course, made to
phase the NIS commitments among the producing
branches and to schedule their IS.roduction through-
out the fiscal year consistent with other require-
ments for maintaining systematic coverage of coun-
tries and economic sectors within the purview of
the Area. The problem was compounded by the fact
that many of the sections depended on supporting
contributions from the military intelligence
agencies. Compliance with OBI's production and
maintenance schedules involved firm deadlines, of
r
course, but such deadlines had a degree of artifi-
ciality compared with the urgent needs of important
policymakers. The fact that a year or more might
pass between the submission of an ORR contribution
and the distribution of the published NIS made it
difficult to convince the hard-pressed analyst that
OBI's deadlines were all that important.
The nature of the NIS also proved a problem
for ERA's analysts in the early period of this
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1-7
program. Comprehensive descriptive coverage with a
minimum of speculation, estimation, or forward projection
was what the OBI editors wanted. The ERA analyst and
his superiors, on the other hand, were attempting to
produce more policy-oriented and problem-solving papers
once the "Inventory of Ignorance" approach had been
shelved. The difference in point of view was well
described by
in a memo to
setting forth
the difficulties that ERA was having in producing NIS
manuscripts acceptable to OBI:
0.7.
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(1)
(b)(3)
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r
Differences with OBI were gradually resolved, as
OBI gained an understanding of the problems of
dealing with closed economies and as ORR familia-
rized itself with OBI requirements. The latter
was achieved in part by the development of a small
number of NIS specialists -- analysts who acquired
the knack of research and writing according to the
NIS format. A special NIS coordinator became a
permanent fixture on ORR's Publications Staff and
assisted in isolating the problem and, to a degree,
insulating the production of NIS sections from the
rest of the work of the Area. As NIS production
became primarily a maintenance program, the dif-
ficulties of complying with the OBI format require-
ments also became less burdensome. NIS production
was found to be a useful way, particularly in the
1960's when ERA went worldwide to indoctrinate
(b)(1)
(b)(3)
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new analysts in intelligence production and to give
them factual background on their assigned countries
as a prelude to more analytical work.
3. Other Contributions
Other customers whose anticipated needs
were taken cognizance of in the annual program
included:
In
�
,
� ,_�
In
17
� �In
(1) The EIC, particularly for thp
ublications covering economic
activities and the China trade and
transport studies;
� (2) Other IAC/USIB committees, such as
the Joint Atomic Energy Intelligence Com-
mittee (JAEIC) and the Guided Missiles and ;
Astronautics Intelligence Committee (GMAIC); I
(4) The Directorate of Intelligence
of the US Air Force (ACSI, USAF) for
targeting studies; and
(5) The economic defense community.
Direct support contributions and reports
designed to improve the Area's support capabili-
ties typically made up 80 percent of its programmed
research. Although welcoming requests for such
support within its area of responsibility, the
Area found that on occasion such requests could
require research so time-consuming as to disrupt
(b)(1)
(b)(3)
(b)(1)
(b)(3)
In
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-7
,
7
71
rn
its ability to carry out projects of equal or
higher priority. Certain economic defense com-
munity requests were of this character, while Air
Force targeting studies could also assume major
proportions. Thus a major management responsi-
bility was negotiating with requesters to tailor
their requirements to the Area's capabilities,
enabling it to meet their needs within the reserve
time set aside for such requests.
4. "Self-Initiated" Projects
Rigidity in the economic research program �
was a danger which required considerable effort to
avoid. The potential for it existed in the need
to program in sufficient detail to assure that all
components and analysts were usefully and fully
occupied. At the same time it was necessary to
retain the flexibility to respond either to external
requests for support or to internally perceived
needs for new attacks on intelligence problems
within the assigned fields of responsibility.
Analysts were encouraged to put forward ideas for
such new approaches not only in the annual program
preparation but as they might suggest themselves
from current developments throughout the year.
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L _J
Thus requests for support or new developments fre-
quently made necessary the postponement and occa-
sionallyithe cancellation of programmed research, when
the need arose.
The 20 percent of programmed research that
was "self-initiated" was of necessity low on the
prioritylist and most subject to postponement or
cancellation. Yet this often consisted of the basic
research 'in depth designed to apply more sophisti-
cated methodologies and measurement techniques to
the target economies. The search for more accurate
indexes of gross national product and industrial
production, for meaningful ruble-dollar ratios, and
the like went on continually in this category of
programmed research.
The postponement and cancellation of pro-
grammed research became more of a problem as policy
support on a crash basis became a common phenomenon
of the 1960's. By 1967, the whole programming
activity was coming into question, as projects and
even complete branch annual programs had to be
abandoned. With certain exceptions the Area was
no longer able to program with any degree �of assur-
ance. At,the same time the long-ranging exhaustive
study occupying thousands of man-hours was no longer
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possible (or in any great demand), so that programming
except for the established commitment was less
necessary. Accordingly, following the issuance for
FY 1968, the annual programming exercise was
abandoned.
5. The S-Project Series
(_1
L I
1
A simple procedure for management control of
the unscheduled support projects was devised in
1955 with the institution of the S-project series.
Requests for support came to the ERA in a variety
of ways; properly they would come through channels-,
but often an analyst would be called by a desk
officer in State, or elsewhere, with whom he had
had a personal contact, and a request for support
would be laid on in this way. In order that command
authority over and a proper record of this growing
activity could be maintained, it was required that
every request for support be approved at the division
level and channeled through or reported to the
Planning and Review Staff before actual work was
begun. That staff would authotize the work or sub-
mit for Ch/E's approval those that appeared un-
usually burdensome, lengthy, or significantly out
of the normal pattern of ERA responsibility. The
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!
1
I
assignment of an "S-number" by the staff was the
formal signal that the project could proceed.
Between 10 October 1955 and 30 June 1972,
S-projects
were authorized. Details with regard to S-1 have
not been found; S-2, initiated on 10 October 1955
and forwarded on 20 October, was a study requested
by a Congressional subcommittee and transmitted
through the Bureau of the Budget for an evaluation
of the quality and adequacy of published foreign
economic statistics. 84/
The roster of S-projects undertaken since
that time constitutes a vivid record of the EPA's
support activities with respect to the economic
intelligence interests of the government
Although the formal
project always was the main preoccupation of the
Area, and the list of such projects provides aril
accounting of most of the research and reporting
activity by the Area, it does not reflect the almost
infinite variety of intelligence problems with which
the Area was faced. No summary statement can do
this variety justice nor can it reveal the diversity
of requesters involved. The latter ranges from the
President of the United States
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
L _
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Many of the substantive contri-
butions discussed in ensuing chapters of this
history were made under this category of activity,
including the great majority of projects undertaken
in support of the DDP and many of the "crash"
projects undertaken in times of international ten-
sion, such as the Cuban missile crisis, the Sino-
Indian border war, the flare-ups between the Arabs
and the Israelis, and, of course, the Vietnam War.
6. External Research
The economic research activities of ORR have
been supplemented and supported since its early days
by a number of external research arrangements.
�These have been designed primarily to utilize
�
special professional competence or exploit accumula-
tions of data with resources not readily available
to the Office. The most significant of these
arrangements are described below.
114
(b)(1)
(b)(3)
(b)(1)
(b)(3)
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F-1
L
(b)(1)
(b)(3)
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b. Foreign Population and Manpower Studies
This project, performed by the Bureau
of the Census, Department of Commerce, became
operative in 1951
The project was designed for the collection and
_analysis of data on the population of selected
foreign areas, principally Communist countries, to
provide (a) population estimates and projections,
by age and sex, for individual countries; (b) de-
tailed studies ,of education and labor force develop-
ments in selected countries; and (c) basic data on'
population and labor force characteristics.
(b)(1)
(b)(3)
(b)(1)
(b)(3)
1 1 6
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JJET
P.
L
ni
'
rn
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r-7
B. Organizational Adjustments
From the establishment of the Economic Research
Area in 1953 until its demise in 1967, its intel-
ligence production responsibilities grew steadily
while its authorized personnel strength dwindled.
Accordingly, the ERA was repeatedly called upon to
reallocate its personnel resources, eliminate lower
priority functions, and reprogram its research
effort.
During the first five years the major new
functions absorbed by the ERA and the numbers of
people assigned to their accomplishment were as
follows:
(b)(1)
(b)(3)
(b)(1)
(b)(3)
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Table 1
Assignment of Personnel to New Responsibilities
of the Economic Research Area a/
New
Responsibility
Military cost
analysis
Nuclear energy
Guided missiles
Economic penetration
NIS program
Current support
Total
Personnel
Assigned
to
Responsible
Component
Estimated
Supporting
Personnel Total
in Other ERA
Branches Personnel
a. 86/. Including clerical personnel.
This total of
sponsibilities
persons assigned to new re-
combined with a decline in personnel
was accomplished by internal
shifting which retained the basic divisional struc-
ture, but involved some branch and staff changes
and considerable reassignment of personnel.
1. Establishment of the Current Support Staff
The principal organizational development
of 1955 was the establishment of the Current Sup-
port Staff. The function of support to OCI and
the production and review of current economic in-
telligence had been carried out initially within
(b)(1)
(b)(3)
1-1
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�.(rICET
the Special Support Staff of the Strategic Division
and subsequently by a section of the Planning and
Review .taff when that division was abolished in
September 1953. The, delineation of responsibility
for the production of current economic intelligence
on the Sino-Soviet Bloc between ORR and OCI had
remained fuzzy, however,
and
was eager to
(b)(3)
(b)(6)
T
f-1
r--�
have the duplication of effort eliminated. He
accordingly directed the two offices to devise a
means ofimore effective collaboration. The solu-
tion arrived at and put into effect on 31 May 1955'
for a six-month trial established the Current
Intelligence Support Staff (CSS), which
the former Current Intelligence Support
included
Group of
(b)(1)
(b)(3)
_I
the Planning and
Support Staff and professionals
(b)(1)
(b)(3)
from OCI:
from the Soviet Staff and
from
(b)(1)
(b)(3)
the Far East Division. OCI set up an Economic
Advisory, Group, which was located physically next
to CSS, to provide guidance on OCI's format and
presentation standards, and to levy requirements
for and coordinate ORR's current economic intelli-
gence product for inclusion in OCI publications.
CSS not only produced current economic intelligence
on its own but also provided the mechanism for the
coordination and publication of the current economic
1-7
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�CrKET
intelligence product of ERA's line divisions and
branches. In addition to the publication of this
material in OCI publications as appropriate, the
(b)(3)
(b)(6)
� (b)(3)
(b)(6)
,staff undertook the issuance first of Current Sup-
port Memoranda (CSM's) and later of Current Support
Briefs (CB's).
This arrangement was found to work satis-
factorily and was made permanent early in 1956.
The first chief of the Current Support Staff was
who subsequently left ORR to become
a division chief at NPIC. He was succeeded by
one of the OCI transfers and
a former ORE
and ORR analyst. served
(b)(3)
(b)(6)
1-1
as CSS Chief from 20 October 1957 until 8 September
1968 when
he transferred to Central Reference
Service,
(b)(3)
(b)(6)
1CSS
operated with about
professionals (b)(1)
(b)(3)
r
and supporting clericals organized into regional
groups covering the internal affairs of the USSR,
China and other Asiatic Communist
European Communist countries, and
tional economic activities. Free
countries, East
Communist interna-
World economics
have not been undertaken by:CSS. The staff, however,
processed and presented to ,OCI for inclusion in its
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_�..tie;RST
r
;
fl
T �1
publications current economic intelligence prepared
by OER Free World analysts. The staff also main-
tained the channels for coordination of relevant
articles prepared by OCI, OSI, and friendly foreign
intelligence organizations. ORR, and later OER,
participation in the indications and warning process
also was lodged in the staf, with the assignment of
weekly attendance at the USIB Watch Committee where
relevant economic indicators are presented and re-
viewed.
During the 1950's and early 1960s, when �
Current Support Memoranda and Current Support Briefs
were authorized publication categories,
a week were produced, while articles, contributions,
and miscellaneous -items, for OCI, the National
Indications Center, and the various ad hoc task
forces established in times of crisis reached more
than Staff-produced items
appearing in OCI-administered daily and weekly
publications numbered
with some variation reflecting international crises
involving economic functions. In 1970 the number
had grown the increase largely
a result of staff-processed items on the Free World
produced by OER analysts. In addition, large numbers
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
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5cA':h4r
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17
Lr
T
I
(b)(1)
(b)(3)
(b)(1)
(b)(3)
(b)(1)
(b)(3)
of occasional items were produced annually; briefing
notes for the White House Congressional hearings,
and the DCI formed the most significant portions
of this material. 87/
2. Operation "Dior"
The "Dior" Committee, consisting of the
Chief and Deputy Chief, ERA, and the four division
chiefs, was set up in June 1955 primarily in re-
sponse to an official denial of the Area's FY 1957
budget request for additional personnel. In fact,
a 5-percent cut had been ordered in the personnel
ceilings of DDI Offices, and the committee was
accordingly set up to review the possibilities of
internal adjustments to respond to changing intel-
ligence priorities ,within the existing personnel
restrictions: Its meetings in the summer of 1955
were concerned with a review of priority responsi-
bilities and a reevaluation of the FY 1956 research
program in terms of these responsibilities. It
recommended a
professional-clerical
ratio, which led to the reclassification of
professional vacancies in the area to clerical
status.* It then proceeded to consider the
* The ERA objective was
clericals. As of 21 October
professionals over and
ceiling. The T/0 was
spring of 1955.
(W(1)
(b)(3)
(b)(1)
(b)(3)
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professionals and
1955, the area was
clericals under the
down in the.
(b)(1)
(b)(3)
� (b)(1)
(b)(3)
(b)(1)
(b)(3)
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ferft-ET
j
' f-1
r-
_
rejuggling of missions, workloads, and strength of
individual branches in order to perform the re-
assessed priority functions.
In May 1956 the Committee sent to the
AD/RR a proposal for a new division in the ERA.
This division was to bring together the existing
Aircraft Branch, Shipbuilding Branch, and Weapons
and Ammunitions Branch of the Industrial Division,
the Military-Economics Branch of Analysis Division,
the ad hoc Guided Missiles Staff (converted into a
branch), and a new group to work on the economic
aspects of the Bloc nuclear energy program. The
achievement of unified direction and easier com-
munication between the elements concerned with the
military aspects of the Bloc economies were the
major justifications for the proposal, but it was
also urged as a better means of enabling the DCI
to carry out his responsibility for evaluating
military-economic intelligence i)roduced by the
service agencies. In addition, it would make it
more convenient to concentrate on the Soviet
Ministry of Defense, which was the focal point for
decision-making on matters affecting economic as-
pects of Soviet military programs. Although pains
123
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j_EGRET
f
_
r--�
were taken to assure that the work of the new
division would supplement rather than duplicate
or compete with that of the armed service intelli-
gence organizations, it was felt by the AD/RR,
and apparently by the DDI as well, that the services
might interpret this development as an attempt by
CIA to assume large responsibilities in their fields
of primary concern. Accordingly, the AD/RR sug-
gested instead that a deputy chief in the Industrial
Division be assigned primary responsibility for
the miltiary branches of that division and for loose
liaison with the Military-Economics Branch of D/A.
A Guided Missiles Branch and Nuclear Energy Staff
would be created under his direction. 88/ These
suggestions were effected soon thereafter, and the
Military-Economics Branch was transferred to the
Industrial Division the following year.
was made Deputy Chief of the Division with prime
responsibility for the military effort. The fol-
lowing spring (March 1957), he was promoted to chine4
of the Division, continuing to give his major atten-
tion to the military side of the division's activi-
ties.
Among the major results of the "Dior"
approach in 1956/57 to the Area's personnel problem
(b)(3)
(b)(6)
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>SY-eltET
� 1-
En.
was a reduced ratio of staff to line personnel.
The Support Staff was consolidated with the Project
Control Staff and put under the AD/RR. St/PR was
reduced in function, with its elimination from the
, substantive review process and with the Accounts
Group and NIS Coordinator transferred to St/PB.
These changes in,the ERA were accompanied by
the abolition of the Coordination Area, which had
lost its Basic Intelligence Division when OBI was
set up as a separate office in 1955, and now lost
its Economic Defense Division when this activity
was cut back and assigned to the new Trade Controls
Branch in the Services Division. The remaining
Coordination Area functions,
the EIC Secretariat, were attached as staff func-
tions to the Office of the Assistant Director. 89/
The pressure of demands to expand the re-
search effort on the Soviet guided missile program
was again felt in the spring of 1958. The requests
for an expansion of T/O to cope with this augmented
effort were denied, and -- as was the case on sev-
eral 'similar occasions -- the Office was directed
to undertake the proposed expansion of activities
by drawing any necessary new positions from the
existing T/O. In order to achieve the goal of
(b)(1)
� (b)(3)
I _I
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raising the Guided Missiles Branch
(b)(1)
from profes
(b)(1)
(b)(3)
professionals and
(b)(3)
sionals and lerical to
(b)(1)
clericals, it was necessary
to relocate a
(b)(3)
(b)(1)
!
(b)(3)
number of functions, abolish six branches, and
establish three new branches for a net loss of three.
This reorganization, carried out in the spring of
1958, and the several that preceded it under
Operation "Dior" are summarized in the accompanying
diagram (Figure 1, page 1271.
This type of reorganization was character-
r
istic of the means adopted to meet the changing
priorities in economic intelligence over the years
of ORR's existence. The personnel ceiling reached
its peak early in the life of ORR
and thereafter was progressively reduced. The con-
stant review of priorities and the elimination or
reduction of functions that resulted has undoubtedly
meant on occasion the neglect of subjects of intel-
ligence interest, but it has also meant that high-
priority needs have been responded to promptly and
that declining needs have been as readily elimi-
nated. "Agonizing reappraisals" have turned out
in retrospect not to have been so agonizing, and,
in the process, the Office maintained and regenerated
a research organization alert to and capable of
(b)(1)
(b)(3)
1 2 6
SE
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r-!
REORGANIZATIONS EFFECTED BY OPERATION
1956-58
UNITS ABOLISHED FUNCTION TRANSFERRED
COORDINATION AREA: 1 Economic Defense
'DIOR"
RECIPIENT BRANCH
SERVICES DIVISION:
Controls Branch
SERVICES DIVISION:
Construction Branch
, Economic Defense Division ,
SERVICES DIVISION:
Organization and
Civil Defense
Management Branch I
Soviet Arctic
GEOGRAPHIC RESEARCH
AREA:
Geography Division
Organization and
Management
ANALYSIS DIVISION:
National Accounts
USSR Branch
. _
ANALYSIS DIVISION:
National Accounts
ANALYSIS DIVISION: 1
Capabilities Branch
,
National Accounts
European Satellites Branch
ANALYSIS DIVISION:
Far East Branch
_
r-
SERVICES DIVISION: I
Population and Manpower
ANALYSIS DIVISION:*
Population and Manpower
Branch
.;

Consumer Welfare ,
Population and Consumer i I
Welfare Branch
- � -
Consumer Goods ,
INDUSTRIAL DIVISION:
Industries
INDUSTRIAL DIVISION:* i
Consumer Industries
Branch
Machine
Building Industrie
Manufacturing
Branch
Sectors
INDUSTRIAL DIVISION:
i
Medium Machinery Branch
� �
i
i
OFFICE OF THE CHIEF
i
INDUSTRIAL DIVISION:* I
Guided Missiles
ECONOMIC RESEARCH:
Guided Missile Staff I
i
Branch I
i
1_
INDUSTRIAL DIVISION: ' Transport and Heavy Machinery,.
INDUSTRIAL DIVISION:*
Transport and Heavy
Machinery Branch I '
Electrical Equipment
Producer's Equipment
Branch
,
Electronic
Equipment
INDUSTRIAL DIVISION:* ,
Electronic Equipment
INDUSTRIAL DIVISION:
Electrical Equipment
Branch
Branch
� � � �
ANALYSIS DIVISION: ,
INDUSTRIAL DIVISION:
Military Economics Branch
Bloc Weapons Trade
Military Economics
Branch
� INDUSTRIAL DIVISION:
'
Weapons and Ammunition
Branch
Atomic Energy
0
MATERIALS DIVISION:
Petroleum Branch
Petroleum
MATERIALS DIVISION:
Solid Fuels
MATERIALS DIVISION:*
Solid Fuels Branch
Electric Power
Fuels and Power Branch
MATERIALS DIVISION:
Electric Power Branch
'New branch
614007 12.72
27
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QT
responding to national intelligence objectives as
they have developed.
C. Personnel Management
By far the most important and difficult manage-
ment problems of the ERA have been the recruitment,
development, training, and retention of skilled
(-1 .
professional personnel. This was true in
day, when nobody really knew how many
people were needed for the job nor what might be
the appropriate mix of engineers, commodity and
functional technicians, area specialists, and
academic economists. It has remained true through-
out the timespan covered by this history.
The professional cadre inherited from ORE was,
of course, an unknown quantity to
He
indicated after his departure from the Office that
he had been offered a free hand and could have
"swung a heavy axe," but he did not want to fire
indiscriminately until he knew what kind of people�
he had, what kind and how many he would need, and
whether he could recruit fast enough to keep the
organization going. He thought, however, that the
personnel problem had pretty well worked itself
out during his brief tenure and " ... aside from
. the D/Z problem, he considered that he had a good
128
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(b)(6)
(b)(3)
(b)(6)
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team in action not long after he had begun to
L_
1--i
work." 90/
were, however, less
happy with the
Others
situation.
whose influence in the
(b)(3)
(b)(6)
development of the Area's organization has been
E
advised at the start of
set forth above,*
(b)(3)
the latter's
tour as AD/RR that:
(b)(6)
r
r
L ,�
One of the outstanding weaknesses of
ORR is a deficiency of top flight research
directors, particularly professional
economists this deficiency in research
leadership is in part traceable, I believe,
to use of the wrong criteria for choosing
supervisory personnel. A Chief of a com-
modity branch, for instance, is usually
chosen on the basis of his technical com-
petence, not his ability to direct re-
search in conformity with office-wide ob-
jectives. 91/
was in this instance giving expression
to a point of view about the technical specialists
prevalent among the professional economists in the
Office, while, as might be expected, the tech-
nicians and engineers tended to hold equally
gloomy views about the theoreticians. The fact
is, of course, that both types were needed; there
were wide areas in the Office's mission, particu-
larly in the "Inventory of Ignorance" days, that
* See III, A, above.
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(b)(3)
(b)(6)
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�SEGRET
F)
J
needed technical, engineering, and industrial
knowledge; equally, the assessment of overall eco-
nomic strength needed the tools of modern economic
analysis. The problem was to get enough good
people of both types. The engineer who is happy
doing "jigsaw puzzle" research and who can write
p his findings with clarity and conciseness is a
�rare commodity, while the theoretical economist
who can adapt his research interests to the
policymakers' needs and write for the educated but
non-professional busy reader is not easy to find �
either. Deadwood was found in both camps, but
more serious than getting rid of it were the
problems of attrition of good people and the dif-
ficulties of recruiting enough replacements to
maintain production. ERA attrition in the mid-
1950's, through transfer, retirement, resignation,
and manpower levies (for high-priority projects
1-1
elsewhere in the Agency or
Community), averaged
professionals
per month, or
(b)(1)
(b)(1)
(b)(3)
(b)(3)
per year.
Since only about
applicants
(b)(1)
(b)(3)
Fl
� (b)(1)
(b)(3)
put in process could be counted on to survive pro-
applicants per year were
cessing,
needed to keep the ERA at strength. This was far
more than the regular Agency recruiting activity
_
130
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could provide. Even though much of the attrition
was accompanied by declines in the authorized per-
fl�
P.
sonnel strength of the Area
in 1953 to
(W(1) in 1958*), a concerted eftort was necessary to '
(b)(3)
keep the pipeline full and to bring on board enough
professional personnel to carry out the Area's
mission.
1. Special Recruiting
In response to this problem, the Area in
the fall of 1954 launched a program of campus
recruiting visits by senior ORR economists in
company with the Agency's professional recruiters.
As the result of this experience, the program was
considerably expanded in the following year, when
six teams of recruiters visited 37 campuses. The
program has been pursued since that time with
varying degrees of emphasis and has developed into
the principal means of attracting young talent for
the Office -- although in quantitative terms it
did not match those turned up by regular recruitment
Figures include clericals.
(b)(1)
(b)(3) �
(b)(1)
(b)(3)
131
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sc,Rirr
Lj.
L.J
r
E
I
�
activities the Career Trainee (formerly Junior
Officer. Trainee) program, internal transfer, and
applicant-initiated overtures.* Nevertheless, the
proportion of successful entries-on-duty to indi-
viduals interviewed under the ORR program has re-
mained low.
Quite aside from the "Agency-image" prob-
lem which plagued recruitment in the 1960's, there
were chronic problems associated with the market �
for economists -- during most of the period covered
by this history, competition for good junior econo-
mists was keen, and the Office was hampered by
unfavorable salary differentials, long delays for
security clearance, and the secrecy problem, I which
led many graduate students and their professional
mentors to reject Agency employment because it
appeared to establish a barrier to achieving pro-
fessional recognition through publication. It was
for the latter reason that from 1958 through 1967
the Office pinned high hopes on its developing
program of unclassified dissemination.
See Table 2.
(b)(1)
(b)(3)
132
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T
Table 2
Recruitment for the Economic Research Area 93/
1956-70
Special Recruits Regular Recruits
Year Ending' Put in Entered: Put in Entered
30 Sep Process on Duty' Process on Duty
�
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Total
(b)(1)
(b)(3)
r 1
133
SE T
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�farET
The use by ORR of senior officers for re-
cruiting purposes
within the Agency
as indeed it was.
attacks, however,
occasionally came under attack
as expensive and time-consuming
In response to one of these
wrote:
�=1.
1 34
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(b)(1)
(b)(3)
(b)(3)
(b)(6)
(b)(1)
(b)(3)
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r
2. Training
No matter how well qualified or trained
the new analyst might be, it proved to be in-
variably necessary to provide some measure of
internal training. Indoctrination courses by the
Office of Training were, of course, a significant
part of this process, but ORR itself also under-
f
took to provide research aids, procedural guides,
and internal training courses of its own as sup-
plements to the formal Agency courses.
As part of the internal training and guid-
ance of analysts, the Office found it necessary
to issue a series of research aids during the
early years. Some of the titles, as set forth
below., are sufficiently descriptive to show the
range of subject matter covered.
135
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(b)(3)
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I
L
r
(b)(1)
(b)(3)
(b)(6)
136
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f--
77
Thus by the mid-1950's there existed a
small but useful collection of intra-Office guidance
material, designed to aid the analysts
velop standards of research, analysis,
tion for the Area's published product.
and to de-
and presenta-
The process
of review of economic intelligence papers, involving
successively the section chief, branch chief,
division chief, area chief, and Publication Staff,*
(b)(1)
(b)(3)
1-7
1-- 1
was, of course,
the training
Among
veloped were
train analysts
and
the
in
(1)
itself an important
guidance of analysts.
internal training
tool for
course de-
designed to
(b)(3)
(b)(6)
(b)(1)
(b)(3)
f-
(2) starting in November 1955 a course
in economic intelligence
writing, given by
head of the Publication
(b)(3)
(b)(6)
Staff from 1955 until his retirement in 1965; and
F.]
* The elimination
of the Planning and Review Staff
from this process was gradually
achieved during
the first several years
of
incumbency as
(b)(3)
progressively reduced
by 1958 it consisted
Chief, ERA.
in size and
The staff was
functions until
(b)(6)
(b)(1)
of only
professionals
and clericals con-
(b)(1)
cerned with
keeping, and
recruiting, record-
assistance to the Chief,
(b)(3)
(b)(3)
program planning,
ad hoc staff
(b)(3)
ERA.
137
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jEGRST
(b)(3)
(b)(6)
L
fl
(3) a course in economic statistics, given by a
number of different senior. ORR economists, in-
cluding
and
138
(b)(3)
(b)(6)
(b)(1)-
(b)(3)
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jQRlT
In 1962 an expansion of ORR's specialized
training program was inaugurated. A number of the
ERA's senior employees were primarily skilled in
technical specialities, and such economics training
as they had, if any, was at the undergraduate level.
Furthermore,
recruiting graduate students in eco-
nomics was not sufficiently successful to "keep
the pipeline full" and a number of promising B.A.'s
were accordingly being hired. It was decided,
therefore, to make graduate training in economics
more readily available to those who could benefit
from it.
an M.A. program in economics was offered
to appropriate analysts, with certain "core"
courses being given on an after-hours basis at the
Headquarters Building. Instructors for these
(b)(1)
(b)(3)
(b)(1)
(b)(3)
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ETT
courses, recruited from ERA's senior economists,
r-
L
r
r--
included
and others.
As in the field of recruiting, ORR's in-
sistence on developing and maintaining its own pro-
grams of analyst training had to overcome objections
from some other elements in the Agency. In this
case also, the need for special treatment because
of the nature of its mission was the argument of the
Office in response to these objections. The whole
issue of the "specialist" versus the "generalist" .
and the struggle to assure that the specialist,
whether economist, geographer, scientist, or what-not,
be recognized as a full-fledged career intelligence
officer were major concerns of
and they expressed their views
matter. For example,
both
eloquently
in commenting on an
on
the
Inspector General's Survey of the CIA Career Service
wrote:
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(3)
(b)(6)
(b)(1)
(b)(3)
140
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r
1_1
(b)(1)
(b)(3)
141
S ET
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o
_
IA7as, if anything, more eloquent on
the subject:
-
(b)(3)
(b)(6)
(b)(1)
(b)(3)
142
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SEGRf
-
The recruiting and training programs and
other personnel management efforts of the Office
must in the final analysis be judged not only by
the quality of the Office product but also by the
caliber of people who have emerged. Both of these
criteria are, of course, matters of subjective
judgment, but the constantly growing demand for
ORR and OER support is one measure of the product
quality, while the quality of personnel may be
indicated to a degree by their successes within the
organization. As of the time of writing, every
line supervisor, save one, in OER had served in the
Office or its predecessor at the analyst level.
Other former ERA analysts now serve as the DDI and
the Assistant DDI. Two sit on the Board of National
Estimates. Others occupy key positions in other
DDI Offices, including one Director and two Deputy
Directors. The Office is also well represented at
Agency management levels, with a number of its
graduates in key positions in the Office of Plan-
ning, Programming, and Budgeting. Note should also
be made of the considerable number of ORR-recruited
people who have transferred to and had successful
careers in other Directorates. This record of
career development and achievement, both within
143
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L.
fl
t _I
and outside the Office proper, constitutes the
best evidence of the sound judgments that have
guided Area personnel practices in spite of occasional
opposition and the considerable difficulties that
existed in the employment market during the period
of this history.
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____ASEGRET
Chapter VI
THE ASSAULT ON THE SOVIET ECONOMY
�
"The Government are very keen on amassing
statistics. They collect them, add them, raise them
to the nth power, take the cube root and prepare
wonderful diagrams. But you must never forget
that every one of these figures comes in the first
instance from the village watchman who just puts
down what he damn pleases."
-Sir Josiah Stamp
Inland Revenue Department (England)
1896-1919
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RET
CHAPTER VI
The Assault on the SoViet Economy
A. Introduction
During the Stalin era
-- a period of maximum
secretiveness in the Soviet Union -- the major
effort in economic intelligence by ORR was the
development of production
the whole gamut of output
Even in those cases
released production
their accuracy were
and related estimates for
from Soviet industry.
where the Communist countries
data, independent checks on
believed to be necessary. A
variety of collection methods were
developed in
order to obtain data on which production estimates
could be based.
14b
(b)(1)
(b)(3)
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F
1 '
L_1
T-1
H
The intelligence gained by these and other
means was processed and evaluated primarily by com-
modity, industrial, and service specialists and
technicians of the Materials, Industrial, and
Services Divisions to produce the quantitative esti-
mates that were the bread and butter of economic
intelligence during this "building-b19ck" period.
More analytical measures of absolute and relative
capabilities were the task of the reorganized
Analysis Division as it emerged in 1952. Aggregation
of these data and the development of economic and
statistical techniques to produce estimates of gross
national product, indexes of industrial production,
and studies of interindustry and interregional re-
lationships became the main goals of the economic
intelligence effort. A number of projects reflect-
ing this aggregative research activity were laid on
in the first research program developed during
tenure, and this type of analysis was given
particular emphasis after the activation of the
Economic Research Area in mid-1953.*
B. The Estimates File
The value of aggregative research depended, of
course, on the adequacy of the data base, so that
* See III, F, above.
147
(b)(3)
(b)(6)
1
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1_1
r--
r--
f
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I
1-7
the "building-block" activity initiated by Millikan
did not diminish in importance.. A considerable
effort was in fact made to systematize and organize
the developing data base through the operations of
the Estimates File. Initiated as a function of the
Economic Accounts Section of the Economic Capabil-
ities Branch in the Analysis Division, this activity
achieved branch status in June 1952. It became a
staff function with its transfer to the Planning
and Review Staff in the fall of 1953, and continued
as such as a responsibility of the Publications
Staff in 1956.
The purpose of the Estimates File was to draw
together the latest and best economic data on the
Bloc countries -- in systematic, easily recoverable
form.* The file was based on a breakdown of the
Bloc economies into 610 discrete activities in the
ORR Standard Classification of Economic Activities,
which was published in July 1952 as one of the first
projects of the Accounts Branch. 100/
* An estimate was formally defined as follows:
"An estimate constitutes the best judgment of the
analyst and his responsible supervisors of the
magnitude of a specific economic phenomenon on the
basis of currently available information, the re-
porting responsibility for which rests with the
indicated analyst and supervisors." 99/
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In addition to basic national data for each
target country -- for example, area, population,
labor force, and national aggregative data -- the
commodity or activity files were to contain esti-
I _ _
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mates covering production, consumption, capacities,
supply patterns, inventories, strategic stockpiles,
distribution patterns, and the like for each signi-
ficant item produced in that country.
Several purposes were expected to be served by
the Estimates File. These included (1) internal
consistency in the Office's publications; (2) analyst
discipline in the systematic maintenance of data;
(3) a central file for servicing requests for
data; (4) provision of latest material for ad hoc
briefings and for the several statistical publica-
tions which were developed; (5) a source of com-
parable data for use in aggregative research, par-
ticularly for interindustry analysis -- that is,
input-output studies; and� (6) provision of an ade-
quate collection of significant data for vital
storage.
The publications that developed from the Esti-
mates File included (1) the Director's Handbook of
Economic Estimates, a pocket-sized handy reference
book including TOP SECRET material kept up-to-date
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by quarterly revisions; (2) the Economic Intelli-
gence Handbook, Statistical Summary, a larger, more
complete office reference work -- with a SECRET
classification -- issued annually (this was the
forerunner of the present day Economic Intelligence
Statistical Handbook); and (3) The Presentation of
Statistical Data, the final version of a long-
planned and often postponed ORR Handbook of standard
statistical practices. This research aid outlined
procedures and statistical fundamentals and estab-
lished guidelines for tabular and graphic presenta-.
tions. 101/
The Estimates File received vigorous support
as an important tool of economic intelligence from
ORR's senior officials, led most energetically by
both when he was AD/RR and after he became
DDI. By his directive it was to serve as:
The file was further justified by
in his
FY 1954 Budget Estimate with the statement that
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enthusiasm was not reflected at the
lower levels. The maintenance of the Estimates
File proved to be a tedious business, since each
branch was expected to check the currency of its
estimates in the Economic Accounts Branch on a
quarterly basis, with an additional ad hoc updating
of the file to reflect the latest revisions upon
the completion of each project. Additional efforts
were required to develop estimates of capacity,
plans patterns of trade, and the like. Compara-
tive data for the United States and appropriate
NATO countries, which
vided by
thought could be pro-
proved difficult and time-
consuming to acquire.* Although the potential
value of the Estimates File was not significantly
questioned, the maintenance of it became something
of a disciplinary problem.
Following a study by
of the problems of maintaining
analyst support and keeping the clerical and
presentation burdens within manageable limits, 106/
an ad hoc committee on the Estimates File was
* The gathering of the Soviet data for the 1953
Director's Handbook consumed hours, the
US data, 'Iours. 105/ (b)(1)
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established in the fall of 1953 to make a final
determination on what should be included and what
should be published. The committee, chaired by
issued its report on 19 March
1954. This report did much to clarify the purposes
and procedures for maintaining the central Economic
Estimates File and the supporting branch estimate
files. These were definitively set forth in the
first supplement to the Economic Research Area
Procedures Series. 107/
The value of the Estimates File came more and
more into question as data from the Communist coun-
tries became more openly available. As previously
noted, the first Soviet statistical handbook-was
released in 1956. The other European Communist
countries followed with a relaxation of their
security restrictions, although the same was not
true of Communist China. It was found that the
annual updating of the Economic Intelligence Sta-
tistical Handbook provided an adequate current
source of data for most purposes and was a far less
time-consuming task than the continual revision and
monitoring of estimate file cards. Accordingly the
file was allowed to lapse during the 1960's. The
discipline that it provided for the systematic
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maintenance of data was provided by analyst par-
ticipation in the maintenance of the Handbook and
by the progressively high standards of statistical
consistency maintained by the statistical check by
the Economic Accounts Section (St/P/A)* of projects
during the editorial review process. 108/
The latter function of the Economic Accounts
Section had in fact gradually increased in impor-
tance at the expense of Estimates File maintenance.
The report
had recommended
that the group be responsible for the limited sta-
tistical audit and review of projects of the
ERA. 109/ Over the course of the rest of the
decade, this reviewing process became a major
burden on the section's attention. By 1958,
all projects were being subjected to
scrutiny. The resulting improvement
accuracy and consistency of data and
techniques did much to establish the
ERA reports.
Thus, although the value and
the section's
in mathematical
presentation
quality of
durability of the
Estimates File itself was considerably exaggerated
* The Economic Accounts Branch of Analysis Divi-
sion was made a "group" in the Planning and Review
Staff in 1953 and transferred as the Economic
Accounts Section to the Publication Staff in
November 1956.
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in the early period, it played a significant role
in the evolutionary process of economic intelli-
gence development. The Economic Intelligence
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Statistical Handbook, its
proved to be one of OER's
with a dissemination list
the usual Office report.
C. Aggregative Economics
As pointed out in 1951 by
lineal successor, has
most valued products,
some three times that of
economic
intelligence encompasses more than an inventory, of
available resources of labor, raw materials, and
instruments of production. In his seminal paper
on the functions and methods of economic intelligence,
he noted that the inventory of resources was only
the first step in the assault on the Soviet economy.
It must be accompanied by analysis of how the re-
sources are allocated to serve certain goals, how
they are interrelated and what would be the "chain
reaction" effect of denial of particular resources
or facilities on the rest of the economy and its
overall capabilities. 110/ The search for this
more comprehensive understanding of the Soviet
economy was reflected in the aggregative analysis
undertaken by the new Analysis Division following
its establishment in 1952.
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The techniques of aggregative analysis that the
ERA exploited in its assault on the Soviet economy
were primarily interindustry accounting and national
product accounting. Although the latter became the
more important of the two, interindustry accounting,
or "input-output" analysis, was the object of much
attention in the 1950's, particularly as it seemed
to have considerable potential in pinpointing vul-
nerabilities in the Soviet economy and in estimating
the economic capabilities of the Communist countries
to support war.
1. In Accounting
It was, as indicated above, recognized from
the beginning that simple production estimates of
key commodities were not enough to evaluate the
Soviets' strategic strength. It was known, for
example, that the Soviets produced only about one-
tenth as much oil as the United States, but one
could not reason from this fact that with regard
to petroleum availability the USSR had only one-
tenth of the military potential of the United
States. The Soviets used no measurable quantity
of oil for heating buildings, their transportation
system used a far smaller proportion of the oil
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resources than that of the United States, and the
Soviets used far fewer petrochemical products in
rs
the manufacture of plastics and other (largely
F' civilian) products than the United States. Thus
the estimate of the military potential of Soviet
L
petroleum had to be analyzed by looking at petro-
leum consumption patterns, on the one'hand, and at
the capital equipment and raw material and labor
requirements of the petroleum industry on the other.
It was this type of problem that input-output anal-
ysis, or interindustry economics, was designed to
solve.
r-i
Input-output analysis is a system of eco-
nomic accounting closely related to the national
accounts system used to estimate gross national
product, but it preceded the latter in the economic
literature by several years. It was first described
by its founder, W.W. Leontief, in 1936. 111/ By the
mid-1950's it.was a subject of much interest among
economists. According to the National Bureau of
Economic Research (NBER) in 1955, "input-output
analysis ... has in recent years absorbed more
funds and more professional resources than any other
single field of applied economics." 112/
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The initial limited effort to apply input-output
analysis in ORR was in connection with an EIC study
laid on by the IAC on 1 November 1951. The project
to be undertaken was an analysis of the economic
capabilities of the Soviet Bloc to support a general
war. 113/ Two studies were to be made, the first
covering a war beginning on 1 July 1952 and the
second, a war beginning on 1 July 1954. After a
number of delays, the first study was divided into
a "cold war" capabilities phase and a "hot war"
capabilities phase. The first phase, in which a
modified form of the input-output technique was
used, was completed and issued as an EIC working
paper (EIC-R-2) on 19 December 1952. 114/
The problems of data inadequacy and the
reluctance of the military representatives to pro-
ceed with the "hot war" phase led, after many de-
lays, to a decision to terminate the project. The
EIC accordingly reported to the IAC that:
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� Since the principal weakness of the study
was the lack of accurate and precise data, 116/
and, since ORR was gradually developing a "data
bank" that it hoped would ultimately provide a
sufficiency of statistical material for this type
of analysis� (the Estimates File), input-output
analysis was not abandoned. The technique, its
data problems, uses, and limitations for economic
intelligence were outlined in a research aid pub-
lished by ORR early in 1954. 117/ The technique
was described as a type of double-entry bookkeeping
which results in a tabulation showing in columns
and rows, respectively, for each sector of the
economy, the inputs or purchases from each of the
other sectors, and the outputs or sales to each of
the other sectors.
consumption pattern
for each sector can
This tabulated data
to show the effects
Thus the input structure and
for the economy as a whole and
be presented in a single table.
can then be used analytically
of changes and to pinpoint the
strengths and vulnerabilities of individual sectors
or the whole economy.
The research aid was followed in mid-1955
by a second and more elaborate attempt than EIC-R-2
to analyze the economy of the USSR by this tech-
nique. 118/ 'Using 1951 data, the Soviet economy
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was broken down into 61 producing sectors and five
nonproducing sectors. The basic table gave a sta-
tistical view of the entire Soviet economy in 1951.
Each sector of the economy had a separate row rep-
resenting the distribution of its output for that
year and a separate column showing the various
inputs into that sector for the year.. Supplementary
tables derived from the basic table presented the
percentage distributions of the components of total
costs and allocations of output for each sector.
Despite the continuing limitations of data -- US
analogs had to be adapted for many entries where
hard Soviet data were not available -- this inter-
sectional framework was believed to be useful for
many intelligence applications. Accordingly,
another effort was made to apply it to the war-
support capability, and it was hoped to apply it
also to the analysis of the Soviet economy's capa-
bility to undertake specific production programs
for guided missiles and atomic weapons.
Although the initial effort to have the EIC
prepare a study on Bloc economic capabilities for
war had not been successful, a new project for this
purpose was laid on by the IAC at its meeting of
14 July 1953. 119/ A new EIC Working Group was
159
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formed new terms of reference were drawn up, and
work proceeded on the project throughout most of
1954. An ORR interim contribution to the project
using material balance analysis was published early
in 1955. 120/ In this analysis, only a selected
L_
list of strategic
of each resource,
the demand for it
balance analysis.
resources was studied. The supply
or material, was balanced against
-- hence the term, material
A benchmark year was
selected,
consumption and supply patterns for the selected
resources were determined and then projected to a
later period, and indexes of output and input re-
flecting the growth of these sectors in the absence
of war or preparation for war were developed. On
this base the analysis of a wartime situation
could theoretically be carried out by appropriate
manipulations of the data.
The report was designed primarily to illus-
trate the technique and highlight the data require-
ments of this particular approach to capabilities
estimation. Many of the assumptions -- for example,
a conventional war of one year's duration, no damage
to the economies concerned, and no accretions from
conquered territory -- made the analysis and the
conclusions highly theoretical. Again there was a
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data problem that made its conclusions even more
tentative. Nevertheless, the technique was con-
sidered promising, and the conclusion at least
indicative of some of the problems that would be
faced by the economies of the Bloc in wartime.
Additional projects which attempted to use
the interindustry or intersectoral accounting system
to analyze the Soviet economy and one on the East
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German economy were scheduled in the FY 1956 re-
search program. These projects did not reach final
publication, but the results of the research
allegedly were useful in developing the national
accounts studies, which have been the principal
product of the aggregative research effort of the
Office. Thus interindustry accounting as a research
tool was largely abandoned in the late 1950's, an
apparent reflection not of judgments about its
validity, but of the scarcity of accurate data
needed to give the technique predictive value.*
2. National Product Accounting
National product accounting was the princi-
pal means used by ERA to measure the national
economic achievements of its largest target coun-
tries, with estimation of the annual gross national
product as the most immediate objective. Other
more specific uses of national account studies for
economic intelligence were as follows:
(1) Together with appropriate ruble-
dollar ratios, they have provided the
basis for international comparisons of
national product in National Intelli-
gence Estimates;
* Its later revival in the 1960's with the improve-
ment of access to data and in response to a Soviet
release of input-output tables on their own economy
will be discussed in Volume III of this history.
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(2) Deflated by appropriate price in-
dexes, national accounts series have
been used to measure the growth of in-
dividual economies;
(3) The end-use and sector-of-origin
breakdowns of national accounts have
furnished information on the structure
of the target economies and the direc-
tions of economic policy; and
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(4) Many of the components derived
� in the construction of national
accounts have been of intelligence
� interest, such as the urban wage
bill, agricultural incomes, house-
hold consumption expenditures, and
gross capital formations. 122/
ORR's first estimate of the Soviet gross
national product was prepared in mid-1951 in re-
sponse to a request from the EconomiciCooperation
Administration (ECA). It represented no sophis-
ticated analysis. A "calculation" was made by some
unstated means "using 1949 as a base year, and then
the 1949 figure has been increased by 7 percent per
annum for the Satellites and 10 percent per annum
for the USSR." 123/
Using a conversion figure for the Soviet
ruble of approximately US $0.13. (that is, 7.7 rubles-
to the dollar), the Soviet gross national product
was estimated as: 1949, $65 billion; 1950, $71.5
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billion; 1951, $78.65 billion; and 1952, $86.5
billion.* 124/
The first ORR economic contributions to a
Soviet NIE were Project 1-51, Conversion of Soviet
Economy to Production for Military Use, 9 March 51
(TS), and Project 2-51, Soviet Bloc Capabilities
for Meeting Essential Civilian and Military Require-
ments in a General War, 12 March 51 (TS). Both were
designed for NIE-25, Probable Soviet Courses of
Action to Mid-1952, 12 August 51 (TS). These brief
papers were concerned with specific commodities and
strategic economic sectors and made no attempt at
aggregative analysis. Thereafter, however, the
ORR contribution to the annual Soviet NIE, which
was designed to identify main trends in Soviet
capabilities and probable courses of action for
the succeeding five years, were broad-gauged surveys
of the Soviet economy aimed at identifying shifts
in economic priorities and developing economic
problems. The projections of economic growth and
the comparisons with the United States were among
the principal purposes of the exercise and thus
provided a major reason for the emphasis placed on
* The more sophisticated techniques of 1959 placed
Soviet gross national product in 1950 at US $87
billion. 125/
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Sovlet economy that it was growing faster than that
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national product accounting. It was recognized
early in the course of the Office's analysis of the
of the United States. As indicated above, ORR's
first commitment to a growth rate figure for the
USSR placed the rate for 1949 to 1951 at 10 percent.
ORR's major NIE contribution in 1952 lowered this
figure to 8 percent. 126/
A major ORR paper on the Soviet economy,
involving the construction of indexes and the
extrapolation of growth trends, was produced at the
end of 1952 as the Office contribution to NIE-65,
Soviet Bloc Capabilities Through 1957. The paper
included the development of production series for
more than 125 commodities and services and the
construction of indexes leading through aggregation
to a single index of gross national product. There
were recognized limitations in the methodology be-
cause of data weaknesses and because the weighting
and aggregating techniques involved the application
of 1941 weights* to the 1952 economic structure.
* Available from a copy of the 1941 plan captured
by the Germans during World War II.
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Nevertheless, the study defined the magnitude of
the Soviet economy in more exact detail than had
theretofore been achieved. Several significant
conclusions were set forth:
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The first attempt by ORR to estimate the
Soviet gross national product in current rubles
using national account construction methods (adapted
from procedures used by the Department of Commerce
in presenting US national accounts) was released
early in 1955. 129/ This report also undertook to
convert the figure for gross national product into
dollars for the purpose of intercountry comparison.
After pointing out the pitfalls of such conversion
attempts, it derived conversion ratios resulting
in an overall average of 10.5 rubles to the dollar
and a dollar estimate of Soviet gross national
product for 1950 of US $96 billion:
Later refinements of national accounting
techniques involved modifications of the accounting
system recommended by the Organization for European
Economic Corporation (OEEC) and the United Nations.
The first of these was CIA/RR 90, Soviet National
Accounts in Current Rubles for 1953, 28 February
1957, S., and the next was CIA/RR 133, Soviet
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National Accounts for 1955, 28 May 1958, S.
These reports and subsequent refinements were the
basis for the periodic judgments about the size
and growth rate of the Soviet economy that were
features of the annual NIE contributions and also
for the public releases made by Allen Dulles and
others in the late 1950s.*
3. Ruble-Dollar Ratios
The refinements and improvements in ana-
lytical techniques resulted, of course, in periodic
revisions of the estimates of gross national product
previously put forth by the Office. As has been
noted above, the estimates of Soviet gross national
product for 1950, for example, underwent at least
two revisions as a result of
In 1951, it was estimated at
1955, US $96 billion; and in
If it had been acceptable to
these improvements.
US $71.5 billion; in
1959, US $87 billion.
ORR's consumers to use
ruble figures for this key yardstick of economic
stature, the .task would have been far simpler, but
international comparisons required a dollar figure.
The differences in the several figures for 1950
listed above were in part a function of the
See IX, below.
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following different average ruble-dollar ratios
used in the calculations:
1951:
7.7
rubles
to
US
$1.00
1955:
10.5
rubles
to
US
$1.00
1959:
12.4
rubles
to
US
$1.00
These differences resulted from yet another
major research and analysis activity of the ERA --
the development of appropriate ruble-dollar ratios
for use in international comparisons. The basic
problem in such comparisons is that the national
product of any country is made up of a great mass
of different goods and services, some of which the
country produces efficiently and cheaply and some
of which it produces inefficiently and dearly. To
compare its output with that of another country
which has �a quite different mix of goods and serv-
ices and costs of producing them is to compare
horses and apples.
Thus the variations in ruble-dollar ratios
that appeared in ORR's research were manifestations
of the observation that, for example, it cost the
Soviet consumer, say, 19.8 rubles to get the equiv-
alent of what the US consumer could get for a dollar,
while it only took 7.7 rubles to buy the equivalent
of a dollar's worth of producers' goods. These
differences were reflections of Soviet resource
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allocation policy. The producers' goods industries
of the USSR had long been favored claimants of re-
sources with respect to allocations of skilled
labor, raw materials, investment funds, and tech-
nological research programs. Consumer goods in-
dustries in the USSR, on the other hand, had been
forced into the position of residual claimants of
resources. As a consequence, the Soviet producers'
goods industries compared much more favorably with
their counterpart US industries from the point of
view of technology and productive efficiency than
did Soviet consumer goods industries with their
US counterparts. Consequently, Soviet prices re-
flected the existing stages of development of the
machine building and consumer goods industries.
Generally speaking, relative prices reflected
relative scarcities in these two areas of produc-
tion -- that is, on a relative basis, machinery
and equipment items in the USSR were cheap and
plentiful, whereas consumer goods were scarce and
expensive. 130/
In order to be able to make direct compar-
isons of gross national product for the two coun-
tries, it was necessary to measure the product of
both economies in both dollars and rubles. The
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application of a set of end-use price ratios --
either ruble-dollar or dollar-ruble -- to US gross
national product in dollars or Soviet gross national
product in rubles enabled comparison in units of
the same currency. It would have been possible,
of course, to use the official Soviet exchange rate
of four rubles to the dollar for this purpose. The
official exchange rate, however, bore no particular
constant relationship to the purchasing power of
the ruble and in fact grossly overstated its actual
purchasing power. The absence of a relationship
between official rates of exchange and the pur-
chasing power of currencies constitutes a major
difficulty in making international comparisons of
economic strength -- a difficulty that exists
between any two countries, not just the United
States and the USSR, since such difficulties are
inherent in international price comparisons. Im-
portant problems which must be dealt with in inter-
national price comparisons include (1) product com-
parability, (2) the representativeness of the sample
of prices, and (3) the development of systems of
weights for the purpose of aggregating the ratios.
Research aimed at dealing with these problems was
a major ORR activity in the 1950's.
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The value of the activity in enhancing the
understanding of the Soviet economy by the analysts
concerned was great indeed, but its usefulness in
reaching what the policymakers wanted -- a single,
unambiguous, and accurate index of the relative
economic strengths of the USSR and the United
States -- should not be overestimated. Such an
index remains elusive because it is conceptually
unattainable. The estimates for 1960, for example,
were that Soviet gross national product was 33 per-
cent of that of the United States as expressed in
rubles, 66 percent as expressed in dollars, and
47 percent as expressed by the geometic mean of the
other two. It was the figure derived by the latter
calculation that was used by ORR when pressed for
a single-value answer to the perennial question,
"Where does the Soviet economy stand in relation
to ours?" It was necessary, however, to point out
the weakness of such an answer and, in the words
of
to emphasize:
that overall GNP comparisons -- dollar,
ruble, or average -- do not measure in any
significant sense the USSR's economic chal-
lenge to the United States. It is the
uses to which productive capacity is put
that are significant. Soviet GNP in 1960
may be 33, 47, or 66 percent of ours, but
Soviet defense expenditures are approximately
equal to ours and investment for growth is
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also equal or perhaps a little larger than
ours. In speeches by the Director of Cen-
tral Intelligence and in many other ways
it has been publicly reiterated that the
Soviet economy, though significantly
smaller than the US over all, is growing
much faster, particularly in heavy indus-
try; that its production is concentrated
along ominous lines -- investment for more
growth, armaments, and the development of
new military technology; that its efforts
in these fields are already comparable in
magnitude to our own; that it is devoting
its resources with all the power of a
determined dictatorship to a long-run aim
declared in Khrushchev's promise, "We will
bury you." 131/
174
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gitST
Except for the last of these suggestions, the
research activities of the ERA for the next several
years were substantially in accord
Work on non-Bloc economic problems was at
the time considered quite beyond the scope of ORR,
17
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which was in fact still having some difficulty in
establishing its primary responsibilities with
respect to Bloc economics in relation to those of
the Department of State.*
E. The "Child's Guide"
ORR economic reports of this period, as seen
from the vantage point of 1972, appear over-long
�and over-documented. Reports of more than 100
pages were the rule rather than the exception,
while source references could run to several times
that number.** The latter phenomenon probably re- .
flected an insecurity about the validity of the
data. Each source citation had to be not only
listed but evaluated.*** The methodology had to be
* See III, B and C, above.
** For example, CIA/RR-21, The
ment Industru of the USSR ,2
pages
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Coal Mining Equip- (b)(3)
This is no isolated example. The average length
in manuscript pages of "RR" reports edited between
1 January and 30 June 1953 was2
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I.
spelled out, and gaps in intelligence identified.
These rigid requirements were all designed to
establish the authority of the Office's judgments
and the rigorous standards of its scholarship.
The serviCe of these ends meant, however, that
productivity was slowed, and more seriously, that
the reports were not being read by those they were
designed to serve. This problem was recognized
fairly early, and a "popular" version of the
Office's findings on the Soviet Bloc was issued
for those "who must run while they read."134/
Known popularly as "The Child's Guide," this re-
port -- 30 typescript pages of text and tables --
provided a summary statement of the economic situa-
tion in the USSR, the European Satellites, and
Communist China. It included: a survey and eval-
uation of the economic organizations; descriptive
material on the salient features of the economic
base; an outline of the economic objectives; and
an indication of the levels of achievement reached.
[_1
The primary author of the first version of "The
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also
coined
Child's Guide" was who
P
its working name.* He had worked with
on
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(in
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ro ec
* Another analyst who worked on this
its second version) was
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who came to the Agency oo no e con inue on p. 179]
r-1
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(-7
detail from the Agency, at WSEG and returned to
ORR at about the time
came to the Office.
In his subsequent work in ORR, he was one of the
prime developers of the methods used to estimate
Soviet military expenditures.*
F. The Soviet Statistical Handbook
The Soviet release of a statistical handbook,
The National Economy of the USSR, in the spring of
1956 marked the first official statistical compen-
dium to become available from behind the Iron Cur-
tain in 17 years. Even though it left many key
questions unanswered (for example, no production
data for nonferrous metals, significant chemical
and military end-items, or key agricultural prod-
ucts; no wage data; no monetary or credit statistics;
and no data on size and composition of state re-
serves), this was a welcome boost to ORR's intelli-
gence effort, providing in most cases a strengthen-
ing and verification of estimates that had been
* These significant intelligence contributions
are presumably discussed in detail in the history
of the Office of Strategic Research (OSR).
179
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made from scattered and low-yield sources. A major
revelation was the population estimate of 200 mil-
lion as of 1 April 1956 -- about 16 million below
ORR's estimate. This led to a recalculation down-
ward of the rate of growth of the labor force, of
the capability to maintain rapid economic growth
rates, and a lower manpower potential. 135/
This release, in addition to making consider-
able new information available for the economic
analyst, heralded a relaxation of Soviet security
restrictions on economic data and wrought a change
in the task of the analyst. No longer was he
"forced to function like an archeologist, spending
most of his time digging for individual isolated
facts. He could now start with figures which,
while far from complete, . . . provided a suffi-
cient basis for serious analysis." 136/
The fiscal watchdogs of the. Agency and the
Bureau of the Budget were not slow to raise the
question of cutting ORR's personnel requirements
following the significant increase in official
information from the USSR and the Satellites
(Poland, Hungary, and East Germany also published
statistical handbooks at this time). Thus it was
necessary to point out not only the many gaps that
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still existed but also the possibilities of more
sophisticated research that were now created and
the continuing need for intensive analysis and
interpretation of both the newly released and other
economic data. 137/
There remained also the question of whether the
released statistics could be trusted. Both the
possibility that local enterprise directors and
collective farm leaders in the USSR might be en-
gaged in false reporting under the pressure of
high production goals and the other possibility --
deliberate falsification by the central authorities
in order to deceive the imperialist spies (or the
Soviet public) -- had to be considered. Thus the
official figures had to be subjected to rigorous
scrutiny, even though common sense indicated that
the elaborate subterfuges that would be necessary
to maintain two sets of accounts at either local
or central levels were much too high a price to
pay for the small gains that deceit could bring.
Statistics are a necessary tool of management
under capitalism, but in a Communist system where
there is no market system providing built-in con-
trols, they are an even more essential operating
tool. Although minor falsification was undoubtedly
181
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taking place at the local level, the many checks
and counterchecks of the Soviet apparatus and the
severe penalties for gross manipulation were
�
believed to be effective in keeping them under
control. The very fact that the Soviet economy
worked at all indicated that only small distortions
were creeping into the system of reporting.
/ Likewise, with respect to the national
statistics issued by the USSR's Central Statistical
Administration, those that could be related were
found to correspond with data carried in a classi-
fied Soviet statistical document captured by the
Germans during World War II. The official statis-
tics, when subjected to this and other checks,
were found to be authentic within the framework
of Soviet definitions and usage.* There remained
the task of interpreting the statistics since these
definitions and usages were, both by design and
by Marxist doctrine, often quite different from
* Later, however, Soviet agricultural statistics
from 1958 until the early 1960's were found to be
significantly inflated. There was some Soviet
admission that this was the case, and independent
checks by Western analysts -- reports of crop con-
dition, weather analysis, and the like -- verified
the judgment. 138/
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Western concepts. In sum, the end of the Soviet
statistical blackout as signaled in 1956 provided
new opportunities and new challenges for economic
intelligence and constituted another milestone in
the movement of the Office's assault on the Soviet
economy to more sophisticated levels of analysis.
183
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Chapter VII
THE REST OF THE BLOC
"The needs for intelligence ... do not fade away
because the factual data on which to base
judgment become scarce."
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CHAPTER VII
The' Rest* of the Bloc
L-1
A. Introduction
Although economic research on the other states
of the Communist Bloc was necessarily subordinated
to that on the Soviet Union during the' Office's
first decade, a considerable attempt -- consistent
with available data -- was mounted against the
Satellite nations. Similar methods were used and
similar (and often more severe) data problems were
encountered. Each commodity and functional branch
in the Services, Materials, and Industrial Divisions
had its China* and European Satellite specialists,
the number varying, of course, with the availability
of personnel and data and with the importance of the
particular economic sector to the countries involved.
Analysis Division was reorganized soon after the
effective activation of the ERA so that aggregative
work on these countries could be carried on by
separate branches established for the European
Satellite (EUSAT) and Far East Satellite (FESAT)
areas. Annual NIE contributions for Communist
China and for the European Satellites as a group
*Usually the China specialist or section had responsi-
bility for North Korea and North Vietnam as well.
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were prepared from 1955 on, and the effort expended
by the ERA on its contributions to these papers
usually resulted in separate ORR publications.
Estimates on the individual countries among the
Satellites or in response to crisis situations also
required ad hoc contributions. The NIS chapters
on the several economic sectors also constituted a
significant burden, particularly, with respect to
the European Satellites, because of the number of
countries involved and the limited number of analysts
who could be assigned to these countries. The
allocations of research time in the annual research
%program to the several areas for the period FY 1956-
63 is shown in Table 3.
Table 3
Percentage of ERA Research Time
by Geographic Area 139/
Fiscal
Sino -Soviet
Year USSR EUSATS FESATS Bloc
1956
1957
1958
1959
1960
1961
1962
1963
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.B. European Satellites
The first major effort on the European Satel-
lites was in 1951 and resulted in the first
off icewide project completed by ORR under
It was primarily an "Inventory of Ignorance" type
of project, aimed at responding to an ONE request
for a measurement of the economic contributions of
the Satellite countries to the power of the USSR.140/
A much more analytical effort, including estimates
of gross national product and of growth rates, was
made in 1953 in the office contribution to the
Satellite NIE for that year.141/
Since the construction of national income
accounts and the measurement of gross national
product were major goals, the paucity of data and
the ambiguities of available statistics created
a problem for the ERA in dealing with these
countries as they did with the USSR. Although
the European Satellites, in most instances, followed
the Soviet lead in releasing more data after 1953,
the problem of dealing with them in the mid-1950's
was compounded by two limitations:
187
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(1) The small number of persons
available to do aaareaative research on
these countries;
This was clearly
inadequate for research in depth to pro-
duce usable estimates of gross national
product.
(2) The lack of language competence
and the difficulty of clearing people with
the appropriate analytical and language
skills necessary to exploit effectively
the available unclassified data on these
countries.
. 188
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In the meantime, it was becoming evident that
a more systematic and comprehensive approach to the
problem of developing data for basic intelligence
on the structure and growth of the European Satel-
lite countries was necessary.
189
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The ERA's internal effort on the European
Satellites in the 1950's focused its attention on
the stability and cohesion of the Satellite and
Soviet economies, seeking out factors which might
lead to some loosening of Soviet control and
evaluating the extent to which the USSR might be
191
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called upon to invest additional resources in the
area: Thus the ERA was able to respond quickly and
with some degree of confidence to requests for
� economic assessments of the situation in the Satel-
lites at the time of the uprisings in Poland and
Hungary in 1956.
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C. Communist China
A 1954 ORR report, �Economic Development of
Communist China through 1957, which was a published
version of the Office's contribution to NIE-88, was
the first complete economic report published on
Communist China. With the establishment of a Far
East Branch in the Analysis Division late in 1953
and with most of the other branches carrying, if
n
r
not a China "expert", at least
analysts
applying their functional skills to the China pro-
blem, a systematic assault on the Chinese economy
was mounted. Similar in scope if not in scale to
that on the Soviet Union, this effort was even more
frustrated than the latter by data problems. In
the mid-1950's, the problem was not so much lack
*See VIII, C, 2, below.
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of data as concern with its reliability. Since the
United States had been actively engaged in the
economic rehabilitation of China between the end
of World War II and the Communist takeover in 1949,
F'
1
,
information on the
of the country was
In the early years
were fairly open in
and modernization.
basic structure of the economy
considered reasonably sound.
of their rule, the Communists
reporting on industrial expansion
However, as with the Soviet
statistics of the period, the validity of this
openly released material was a major research con-
sideration of ORR. Among the projects laid on to
examine this problem was a study designed to test
for reliability the openly released Chinese Com-
munist statistics and related open source data
against information obtained by other means,
and
also against ORR's judgments. The resulting report
indicated that (as had also been determined with
respect to Soviet statistics) there had been no
deliberate falsification of published data for the
Purpose of misleading Western analysts.146/
As noted in ORR's contribution to NIE-13-59, how-
ever, Chinese Communist statistics suffered not
only from the general limitations of Bloc statisti-
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cal data, but also from weaknesses of inexperience,
faulty organization, and lack of trained statisticians.
Progress in overcoming these problems had, it was
believed, resulted in relatively reliable data for
the years 1954-57.147/
With the Chinese "great leap forward" campaign
of 1958 under the slogan "let politics lead economics"
statistical reporting was prostituted to propaganda,
and there was a pronounced deterioration in the
reliability of Chinese Communist statistics. 148/
This judgment led ORR to present a number of in-
dependent estimates of output for several important
'commodities for use in NIE 13-59.* Later, in 1959,
the Chinese themselves admitted that they had over-
stated their accomplishments and announced "verified"
statistics for the preceding year that brought the
Chinese claim into close agreement with ORR estimates.
There was considerable uneasiness among the ERA's
China specialists even about the new claims. How-
ever, progress of the Chinese "commune" and "back-
yard industry" programs had been widely publicized,
*This was the intelligence community's first full-
scale assessment of Communist China's "great leap
forward." There had been a preliminary effort in
February 1959 which concluded that "remarkable in-
creases in production have actually occurred in
1958." 149/
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and all evidence indicated that the Chinese masses
were being driven at a ruthless pace and were ap-
parently responding to the Stalinist pressures to
produce and were accepting the continuing strict
curbs on consumption. Thus, in spite of the Chinese
leadership's downward adjustments in claims, ORR's
China specialists estimated that 1958 had been a
remarkably good year in terms of economic growth
(about 20 percent) and that prospects for continued
rapid growth were high (10 to 13 percent per year
through 1962). At the same time, they warned that:
In retrospect, the uneasiness about the in-
telligence estimates on Communist China during
the late 1950's was justified. They did not take
sufficient account of the irrationality and in-
flexibility of the leaders in ascendency at �the
time in Peking. Much of the product of the famed
"backyard industries" set up in the "great leap
forward" campaign turned out be worthless, and
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the inefficiencies in production and the disrup-
tions of society under the commune system were so
pervasive as to be counterproductive. These
possibilities were recognized by ERA's analysts at
the time, but all the evidence was not in, and the
extent of the damage could not be foreseen. Thus
in the beginning of 1960, EPA was predicting that
In a retrospective look taken in
'Area's estimates for the period,
1963 at thel
wrote:
The carefully considered hypotheses
on which our growth projections were
based proved to be very wrong indeed.
*According to OER's 1971 Statistical Handbook, China
in 1965 ranked seventh in gross national product and
produced only 11 million tons of steel and 42 billion
kilowatt hours of electricity.151/
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First of all, the disruptive commune
organizational change and the useless
backyard industry program upset the pre-
carious holding program in agriculture.
The so-called Leap Forward eliminated
�the thin margin between agricultural
production and the population's minimum
consumption needs, wiping out the na-
tion's annual savings increment and
hence new investment, the indispensable
ingredient of growth.
Secondly, the all-important economic
gains from the alliance with the Soviet
Union -- loans,htechnical assistance, in-
dustrial equipment --were sacrificed on
the ideological al'ta'r of Chinese pre-
tensions to Bloc leadership. The exacer-
bation of tensions reached a climax
in mid-1960, when Khrushchev's patience
wore thin and the Soviet technicians were
precipitately withdrawn from China. This
action effectively ended large-scale out-
side financial and technical assistance,
the key to rapid industrialization.
Thirdly, the Chinese leadership, de-
cided to try to keep as many people as
possible alive, which means that its
small foreign exchange earnings were
(and are) being used up largely to pur-
chase grain and fertilizer in the West.
A .rational policy would be just the op-
'posite,77 namely, to let the least pro-
ductiAie Members of society starve, to
limit the number of. births as severely
as possible, and to use the very scarce
foreign exchange to import the technical
skills which are in short supply and
are needed to get industry rolling again.
Finally, to the bungling of man was
added the unkindness of nature, which
presented China with a series of sub-
normal growing conditions for food crops.
Nevertheless, the Chinese have rebuffed
Soviet attempts to patch up the ideolo-
gical quarrel; indeed, the dispute has
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been inflamed nearly to the point of
open break. The result is that main-
land China, from 1949 to 1958, a shin-
ing showcase of Communist success in
bringing rapid industrialization and
growth to an underdeveloped country,
is:now a very tarnished and discredit-
ed model.
This reviewer submits that the in-
credible blunders of the Chinese leaders
could not reasonably have been foreseen.
Intelligence estimates made by mere men
cannot hope to be correct in every case;
there is always an element of the unknow-
able about the future. Prescience, om-
niscience with regard to the future, is
a faculty denied to mortals.153/
D. North Korea
In spite of the fact that ORB was born at the
height of the Korean War and General Smith was
' known to be particularly incensed at ORE's intelli-
gence shortcomings with respect to Korea, there is
no evidence of significant economic intelligence
production on North Korea by the Office during its
early years. The first recorded indication of in-
terest in this area was the initiation of Project
10.313, Reconstruction in North Korea, in April
1954.154/ This project traced the economic history
of North Korea and its level of economic activity
up to the outbreak of the Korean War (June 1950),
assessed the damage suffered during that conflict,
and estimated the extent of rehabilitation following
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the truce of 1953. Comparisons of its reconstruction
progress with that of South Korea and of the levels
of aid received by each part of the divided country
from its respective sponsors were stressed. In fact,
this comparative approach appears to have character-
ized economic research and reporting on Korea there-
after because of the manifest interest in such com-
parison by US policymakers. Another factor of policy
interest in this research was the assessment of the
relative roles of the Soviet Union and Communist
China in economic influence over North Korea. Thus,
�at the time of the "commune" development in Com-
munist China, an assessment was made of North Korean
agricultural cooperatives for evidence of adoption
of the Chinese system. It was concluded that they
remained essentially in the Soviet tradition and
that the adoption of a full-fledged commune system
was unlikely.155/ Other projects undertaken during
the late 1950's examined various aspects of the
North Korean economy, including electric power,
chemical fertilizers, construction, labor supply,
and foreign trade. Some of this interest -- much
greater than was warranted by North Korea's
intrinsic strength -- was evoked by the requirements
of the NIS program. Most of it, however, was
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clearly a manifestation of policy concern with Korea
as a' divided country and as a friction point in the
cold war.
E. North Vietnam
FT
1
f
Several other projects were prepared in 1954
200
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These included a study of the population distribu-
tion'157/ and an assessment of economic gains to
the Bloc as a result of the partitioning of Viet-
nam.158/ The latter project concluded that North
Vietnam's coal and cement resources could be of
some value to Communist China, which would also
benefit from improved transportation access to
Southwest China. North Vietnam was adjudged to
have a greater potential for a viable industrial.
economy than South Vietnam, but its development
would require the importation of capital goods from
the Bloc and, since there was also a need to import
foodstuffs could cause some drain on Bloc re-
sources. 159/
During the rest of the 1950's, economic in-
telligence on North Vietnam expanded on these
judgments in response to occasional NIE's and other
expressions of community interest in the area.160/
These efforts, although only a small proportion
of ERA's analytical resources were involved, pro-
vided a background of experience and knowledge for
the heavy demands that were to be made on the Office
with regard to Vietnam in the 1960's. This was
particularly true of the ERA transportation and
201.
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construction specialists, whose assessments of de-
velopments in Southeast Asia during this earlier
period and efforts with respect to the Chinese
buildup opposite Taiwan, incursions into Tibet, and
encroachment on the disputed borders with India
were, in retrospect, an invaluable, even if
fortuitous, training experience for the future.
1-1
P
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Chapter VIII
ORR'S RESPONSE TO THE CLAMOROUS CUSTOMER
"We must try to answer the most important of the
� problems put to us ... as quickly and as
competently as possible."
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CHAPTER VIII
ORR's Response to the Clamorous Customer
The two preceding chapters have described in
very summary fashion some of the directions taken in
the basic research effort .to penetrate,
the wall of secrecy around the Bloc economies and
later to interpret available data on those economies
in order to reach judgments about their economic
strength, economic growth, and, in particular, war-
making potential. As had pointed out,
basic research was a necessary forerunner to ap-
propriate and accurate response to the questions
,of the "clamorous customer." 161/ Although the clamor
was nothing compared to what it would be in the
1960's, the customers were starting to make their
needs known by 1953, stimulated no doubt by �the
changes that were taking place in the Soviet Union
following the death of Stalin (5 March 1953).
The first levy upon ORR resulting from this
blessed event.was an invitation from OCI to con-
tribute to Project "Caesar," initially designed by
that Office to provide in-depth analysis of the
circumstances surrounding and developments related
to the change in leadership. ORR's first contri-
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bution to Project
iden'tification of
decisions
"Caesar" in May 1953 was the
certain economic policies and
in the Soviet Union.
The death of Stalin was followed, it will be
recalled, by the rise to power of Georgiy Malenkov.
The first overt
economic policy
in August 1953,
indication of a change in Soviet.
was given in a speech by Malenkov
in which he promised a new emphasis
on the needs of the Soviet consumer. ORR's analysis
of what appeared to be a change in policy and the
Implications of such a change on Soviet industrial
and military strength was eagerly sought by ONE
and other intelligence community customers.163/
ORR's response pointed to previous indications that
the lot of the Soviet consumer was to be improved
and spelled out the implications of the announcement
as indicating a leveling off of military expenditUres
and a modest rise in consumption, but no considerable
slowing down in the growth of Soviet capacity to
support war.164/
. Aside from its intrinsic interest, this memoran-
dum had an additional significance in bringing to a
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r
head the long-festering disagreement with the State
Department with respect to primary responsibility
for intelligence research on the Soviet economy.
An INR critique of ORR's Intelligence Memorandum
accused ORR of uncritical acceptance of the Soviet
plans and, by selective quotations, attributed to
ORR claims that were in fact made by Malenkov. The
resulting furor hastened the decision to spell out
areas of substantive responsibility in DCID 15/1,
giving CIA formal responsibility for economic in-
telligence on the Soviet Bloc.*
A. Military Economic Research
Details of the development of
in military-economic research are
cern of the history of the Office
ORR's capabilities
properly the con-
of Strategic Re-
search. They cannot be ignored in the history of
economic intelligence, however, because
velopment drew heavily on the skills of
ponents of the ERA in addition to those
this de-
many corn-
branches
and staffs formally charged with these matters.
Until mid-1954, there were three branches in
the Industrial Division (Shipbuilding, Aircraft,
and Weapons and Ammunition) that followed the con-
ventional military production activities of the
* See III, D, above.
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Bloc, together with a Military-Economic Branch in
the Analysis Division which researched logistical
support requirements of the Bloc military establish-
ments. One of the outstanding contributions of the
former group was the development of techniques to
estimate Soviet aircraft production.
estimating in this field was de-
veloped to a high degree. A combination of data.,
including factory, floorspace, labor inputs by number
of working shifts, airframe weights, and number of
months of production, was used, and to the resulting
. crude estimate, the factor of experience as express-
ed in the "learning curve" was applied to get a more
precise estimate of the number of units produced of
various types of aircraft.* These techniques were
used for estimating production of all types of air-
craft, .165/ but the biggest payoff came from its
use in estimating Soviet bomber strength. The so-
called "bomber gap" -- that is, the difference in
the estimates of the Soviet strategic bomber force
* The learning curve is a statistical- formula widely
used in the US aircraft industry. It expresses
mathematically the increase in labor efficiency as
additional experience is gained with increases in
production. Its derivation and use were explained
in an Office Research Aid, CIA/RA-7, Theory and
Application of the Learning Curve, 24 Jul 56. OFF USE.
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by the Agency and the Air Force -- was a major in-
telligence issue in the 1950's.*
Research on the conventional weapons industries
and even on the nuclear energy industries was rela-
tively self-contained, but when it became necessary to
analyze the economic aspects of the Soviet guided
missile effort and its ramifications, it was found
that a wide range of economic sectors was involved.
Thus the activity had an important impact on the.
ERA as a whole.
The first major effort in this field was the
Office contribution to NIE 11-6-54, Soviet Capabil-
ities and Probable Programs in the Field of Guided
Missiles; 16 of the 23 branches of the ERA were in-
volved, devoting more than
research hours
to the task. Soviet production capabilities and
performance in the following component fields were
covered: electronic and control mechanisms, pro-
pulsion fuels and oxidizers, high-alloy metals,
antifriction bearings, precision mechanisms, air-
frames, explosive warheads, motors and engines,
testing equipment, and launching apparatus. The
survey of the component production capabilities
208
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E.GRE-Pr
was accompanied by a comprehensive analysis of the
cost of the estimated missile program. The whole
exercise, although producing very little direct
evidence on this initial offering, was recognized
as the beginning of a major intelligence effort which
only ORR among the intelligence community's several
components had the capability to perform.166/
Accordingly, both organizational and programming
steps were taken in 1955 to meet the new responsi-
bilities. Although the Office of Scientific I
telligence, with primary responsibility for the re-
search and development aspects of the problem, was
establishing a Guided Missiles Division at this
time, ORR was not prepared to go this far. Since
there was a notable lack of readily available in-
formation and there were conflicting demands on the
many Office components which would be involved,
proposed the temporary establishment of a special
staff to
The new staff was established as of 1
'under the leadership of
the various commodity, industrial,
June 1955
Although
and service
branches retained primary responsibility for research
and analysis of those economic sectors that would
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support a guided missile program,* the staff was
char4ed with assuring that all subjects and sources
were thoroughly exploited as well as with coordina-
tion of all aspects of economic intelligence research,
collection, and exploitation activities. The esti-
mating of costs in money, material, and manpower of
the Soviet guided missile programs (investment, pro-
duction, training, and operations) and the impact
of these factors on the other military programs
and the Bloc economies as a whole were also important
r-
functions of the staff,
butions to the National
particularly
Intelligence
in its contri-
Estimates on
the subject. As chief,
was responsible
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r
for representing the Office
and assistance to the DDI Guided
in providing advice
Missile Intelligence
Coordinator on both economic
L
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r
r �
r
The adaptability and flexibility of the ERA in
responding to the requirement for guided missile
intelligence are revealed also by an examination
* These included electronics components, precision
instruments, fuels, special metal, transportation
and launching equipment, and launch site and access
road construction as well as missile production it-
self.
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of the research as programmed for the FY's 1954
Ti
r 7
nr,
throUgh 1956. The first program issued under
leadership covering the period December 1953 to June
1954 contained no projects that can be identified
as "missile-oriented." For FY 1955, the program
called for two missile projects -- the,areawide
contribution to NIE 11-6-54 and a project to esti-
mate "air frame and engine production of guided
missiles" by the Aircraft Branch with an assist
from the Electrical Equipment Branch.168/ Total
programmed time
FY 1956 program
tion
hours.
This initial work on guided missiles, when add-
ed to the effort already made on conventional wea-
pons and military manpower, meant that a signifi-
cant proportion of ERA's assets was increasingly
being devoted to military-economic research. In
addition to estimates of production and capabilities
in the several military categories, the determination
of the costs of Soviet weapons systems opened up a
number of fields of endeavor and conjecture for the
economic analyst. As the subsequent history of this
for FY 1955 was
hours. The
listed another major NIE contribu-
and five supporting projects of
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LA
L_A
� T1
L, gram started modestly enough with a $6 million cre-
F1 dit to 'Afghanistan in 1954..* Early in 1955, however,
it was announced that the USSR had agreed to build
a 1-million-ton steel mill at Bhilai in India,
matter will show, the effect on ORR, both substantively
and organizationally, was profound.
8. The' Response ' to'' Soviet Economic' Penetration
Another significant broadening of the Office's
economic intelligence mission occurred in 1955 --
significant not only because it was responsive to a
new development in Soviet economic policy, but also
because it constituted an entering wedge for ORR's
subsequent work on the economies of the Free World.
After the death of Stalin in 1953, the Soviet Union
took a new tack in its foreign policy and embarked
on a program Of economic assistance to the under-
.1
developed countries of the Free World. This pro-
and it became evident that Communist economic pene-
tration of the Free World merited the attention and
concern of US policymakers. The first ORR report
on the subject was disseminated in April 1955. It
was prepared primarily for Nelson Rockefeller on the
Operations Coordination Board (OCB), but was also
given other high-level distribution by the DCI's
* By September 1971, the USSR had extended more than
$14.5 billion in economic and military aid to 35
Third World countries'.169/
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Office. The report noted the rapid growth of Bloc
participation in Free World trade fairs and its
recent extensions of credits to Afghanistan and
India and made the point that:
n1 while the magnitude of the Bloc effort
is still small in money terms and in
comparison to US aid to underdevelop-
7' ed countries, the skill with which
the Soviet program had been develop-
ed is resulting in significant poli-
tical gains with relatively small
F' economic costS.170/
Although much of the early reporting on the .
subject was done by the Current Support Staff, in
July 1955 the DDI directed that an areawide Task
Force be set up to monitor and report on this
r-7
r '
(b)(3)
r-7 (b)(6)
. activity. Chaired by
of ORR's Ser-
vices Division, the DDI Task Force consisted of
members from OCD, OSI, and 00, with a liaison mem-
ber from DDP. Concurrently, Services Division estab-
lished a Soviet Penetration Staff in the Trade and
Finance Branch consisting of
and
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additional (W(1)
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analysts. Its initial report was prepared in response
to a request from the DDR,171/ but it received
additional distribution, including the White House
Staff, and appears to have stimulated wide in-
terest.172/
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With the increase of Bloc activities,* demands
for detailed reporting on the subject increased.
After a request from Joseph M. Dodge, Special
Assistant to the President for Foreign Economic
Policy, to the Secretary of State in January 1956
for detailed reporting on cold war economic activi-
ties of the Sino-Soviet Bloc and for the establish-
ment of a mechanism for coordinated summaries of
developments on a biweekly basis, the Economic
Intelligence Committee set up an interagency work-
ing group to provide this service. The working
group disseminated the first of its biweekly series
on 23 February 1956 and has continued with it up
to the present (1971).173/ The activity was also
summarized in semiannual reports for the EIC, the
first of which provided a coordinated summary of
Soviet external economic activities since World
War II.174/**.
fl
*By February 1956, Bloc credit offers totaled over
$1 billion.
** This became an annual publication in 1966 and the
biweekly was shifted to a monthly in June 1970.
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_
The matter of economic penetration became, over
the next several years, the subject of a number of
other regular issuances of ORR. These included
quarterly briefing papers for the Council for
Foreign Economic Policy beginning in June 19574175/
periodic contributions to the OCBf176/and a series
of sanitized reports for the Business Advisory Com-
mittee of the Department of Commerce. In addition,
Hthe Office of National Estimates began regular pro-
duction of estimates concerned with the nature of the.
Bloc economic threat in underdeveloped areas. Even
more significant for ORR's future work, contributions
were required from this point on to the many esti-
mates prepared by ONE on Free World areas and
countries that were the recipients of Bloc economic
aid. Although there was an unwritten agreement
with the State Department, arrived at early in 1956,
that CIA would cover the Bloc's role in economic
penetration and State would analyze the impact on
the recipient countries, State's contributions to
these NIE's and to the EIC papers on the subject
frequently fell short of what was needed. Thus
ORR found itself doing more and more work on Free
World economics. Ultimately the 1962 major re-
organization was required to formalize this activity.*
r
*See Volume II.
215
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1
The Bloc economic penetration
several facets, all of which were
by the Soviet Penetration Section
� Branch, which was increased to
in March 1956.* A major aspect
of the programs
was the extension of credit on generous terms
(2.5 percent interest charges and a 12-year repay-
ment schedule were typical). Financing of basic
industrial and infrastructural facilities was
stressed, with such prestigious projects as the
Bhilai Steel Mill in India and the Aswan High Dam
in Egypt particularly favored. This Bloc encour-
agement of public sector industry was regarded as
a means of diminishing the role of private capital
and thus weakening the ties of the recipient
countries with the capitalist West. Credits and
grants have often been accompanied by technical
assistance with thousands of technicians being
sent to the recipient countries and large numbers
of technical trainees and academic students going
behind the Curtain for training. Soviet exports
have also been stimulated by these programs.
programs had
followed closely
of the Trade
professionals (b)(1)
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* By May 1962, when the ERA was reorganized, the
equivalent of more than professionals were en- (W(1)
gaged in this activity. (b)(3)
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The subject of Bloc arms shipments and military
equipment and technical assistance was also of
great interest to the Office but was not initially
covered in detail by the EIC biweekly and semi-
annual reports on the economic penetration programs.
These activities were added in 1960
As the appellation "economic penetration"
indicates, all these activities were taken serious-
ly by US policy makers. The United States had,
of course, a substantial lead not only in time
and resources devoted to foreign aid programs but
also in experiencing some of the pitfalls of dealing
with the underdeveloped countries. Nevertheless, the
Bloc programs were widely seen as a threat to US
interests. That Soviet economic credits were natu-
rally applied to the public sector of the target
economies, thus by implication encouraging socialism
f '
and weakening private sector activities, was only
a.part of the threat. The influx of Soviet advisers
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and technicians carried the potential for the intro-
duction of Communist influence and subversion, while
the training of "Third World" nationals in the Bloc
countries could provide the cover for the develop-
ment of cadres for even more serious subversive
%activities. As Soviet military assistance programs
were added, the impact of Soviet influence became
even more pronounced. While it would be false to
say that policy interest in ORR's product was low
prior to 1955, the rapidity and thoroughness of ORR's
response to policy interest in this subject starting
in that year brought the Office to a new level of
official notice. Because more or less the same
thing was happening at about that time with respect
to the Offices's response to a heightened interest
in the economic aspects of the growing Soviet mili-
tary posture, this period is seen in retrospect as
marking a "quantum jump" in ORR's role and reputa-
tion in the intelligence community.
� Although this history is not the place for an
assessment of the overall impact of Communist "eco-
nomic penetration" activities, it should be noted
that not all the apprehension about their impact
on US interests around the world appears to have
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been justified. As with the US foreign aid program,
Soviet efforts in this field have had their successes
and failures. While US and Western influence has
perhaps. been weakened in many countries, this has
been caused by a more complex set of factors than the
persuasive power of Soviet economic aid. The heavy
Soviet investment in such countries as Indonesia and
Ghana did not produce results that could have been
of much satisfaction to the architects of these
programs in the Kremlin. In the meantime Soviet .
internal economic difficulties, the Sib-Soviet rift,
F' and the growing economic independence of the East
European Communist countries modified the picture
of a monolithic world Communist power that was
spreading unchecked from its source in Moscow. Thus,
although US policy interest in the impact of Soviet
economic influences around the world continues (1971),
it has, to a degree, lost the urgency which characterized
Liit during the early years of the Bloc economic pene-
tration activity. The Soviet military aid programs,
particularly in the Middle East, continued,, however,
to be major threats to US interests and to the
stability of the areas where they have been concen-
trated.
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L
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Li
The expansion of ERA's research and analysis
activities to exotic weapons and to economic pene-
tration matters was the major manifestation of a
quite natural development in the history of economic
intelligence. The early years had been spent largely
in collating and reorganizing the data'and identifying
gaps in intelligence. The Office was now responding
.not only to the long-term and obvious areas of
Ignorance about the Bloc economies but also to
current developments which demanded attention.
Having spent a major part of the formative period
in "improving the foundation oflknowledge," 178/ the
Office was now in a position to respond better
to
"clamorous customer." Thus it was
able to make useful contributions to the assessment
of these new Soviet programs.
C. The Crisis Situations
In more pointed crisis situations, such as the
Chinese Communist �threat to the offshore islands
between Mainland China and Taiwan in 1955 and the
Suez crisis and the uprisings in Poland and Hungary
in 1956, the Area also made significant intelligence
contributions.
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1. Taiwan Strait
The ERA's ability to respond in the offshore island
crisis was the indirect result of an effort which
had been made within the Services Division to improve
its recognizably shaky foundations for economic
� intelligence assessments of Communist China. The
division had set up in mid-1954 an informal China
Committee, composed of its small group of analysts
who worked in their respective branches on Communist
China. Its purpose was merely to exchange views,
arrange briefings and debriefings, and coordinate
division activities on China.
r
Am informal working group!
was set Up, which began the publication of an Indi-
cations Journal to analyze and report on these
developments, drawing on the division's expertise in
construction, transportation, and communications.
,221
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by the ERA, but it developed talents of logistical
analysis that would come increasingly into play
within ORB in the 1960's. The Indications Journal
and other ad hoc publications of this group soon
became the community's most authoritative monitor
of Chinese Communist capabilities and intentions
toward Taiwan during this period.
The activity
was continued by this group within the Se'ivices
Division until April 1957 when it was transferred
to the Current Support Staff and carried on through
the regular support channels maintained by that
li Staff with the National Indications Center. 120/
2. Uprisings in Poland and Hungary
It will be recalled that 1956 was a year of major
IT �
L
unrest in the European Satellites, particularly Poland
and Hungary. The new Soviet policy line revealed
at the Twentieth Party Congress in the spring of that
year included the well-remembered attack on Stalin
and his terrorist methods and affirmed that there
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were many roads to Socialism. Designed to support
Communist parties in the West and to move toward
improved relations with Yugoslavia, this line had
the unanticipated effect of stirring latent nationalism
in the Satellites. An armed rebellion broke out in
Poznan, Poland, on 28 June 1956. Although it was
quickly put down, it was followed in October by
the election of a new Polish Politburo, led by
Wladyslaw Gomulka and a number of other nationalist
Communists who had been purged in the late 1940's.
A more serious rebellion occtirredin late October 1956
, L
in Hungary, requiring a major Soviet military inter-
vention to restore control and to establish the pro-
Soviet Kadar government.
The interpretation of these events from an eco-
nomic point of view was not long in coming. Two
Intelligence Memoranda written in response to the
crisis and ORR's contributions to the Satellite NIE
in December of that year traced the economic conditions
in the two countries that made them susceptible to
revolt under the stimulus of an apparent Soviet
loosening of the tight controls established under
Stalin and forecast the likelihoOd that Poland would
achieve a begrudging measure of freedom from the
Soviet Union'.181/
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As for Hungary, the parlous condition of the
economy before the revolt had been aggravated and
future passive resistence would probably make it
worse; the Soviets could be expected to:
insist that a more strict discipline be
imposed on Hungary's political and eco-
nomic policies and that efforts will be
made to eliminate disproportions in the
economy in order to improve the supply
of basic materials and food, reduce pro-
duction costs, and avert the repetitive
crises to which Hungary has been sub-
ject.182/
The other Satellites were noted as being:
still very dependent upon the economic
policy of the Soviet Union ... and
there is little evidence that the changes
will permit the Satellites significant
increase in freedom in determination of
economic policy. 183/
These conclusions were perhaps not too definitive,
and judgments about the degree to which they came
to pass depend somewhat on the time frame from which
they are viewed. In any event, these developments
indicated a need for greater attention to the
evidence that 'the Soviet Empire was not so monolithic
as it had appeared. The considerable expansion of
the European Satellite Branch that was achieved
in the following year was a manifestation of this
concern.
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3. The Suez Closing
The ERA also responded to 'another major "crisis"
event in 1956 -- the closing of the Suez Canal.
Egypt had Seized the canal in July 1956, presumably
in a fit of pique because the United States and
� Great Britain had withdrawn their offers of aid for
the Aswan High Dam. Repeated border clashes with
the Israelis �throughout the summer and fall led to
an open attack by Israel on Egypt at the end of
October. Great Britain and France joined in, and
although a UN cease-fire brought hostilities to an
end after a few days, by that time Egypt had blocked
the Canal by sinking some 40 ships and other obstacles
at key navigation points. Although the Middle East
problems of the period were of major concern to the
US Government, ORR, with the limitation of its charter,
had not been called upon to provide policy support
on this non-Communist area of the world. Nevertheless,
briefing notes for the Director had been prepared
on the Suez Canal the world's supertanker fleet, and
the Egyptian economy prior to the hostilities. After
the closure of the Canal, ORR's shipping, trade, and
petroleum specialists made an assessment of the impact
of this action on Sino-Soviet Bloc trade and trans-
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portation. Although theoretically restrained by the
'niceties of the division of intelligence resp6nsibilr
ities provided for in DCID 15/1, in this paper OR R also
considered the effect of the closure on Free World
commerce, which was much more significant.* In an
NIE contribution considering the impact of the Suez
closure on Western Europe, the Office was able to
provide ONE with some material on the shortage of
petroleum in Western Europe as well as the shortage
of dry cargo ships.184/
I
.In 1955, 107 million metric tons moved through
the Canal, of which only about 5 million consisted
of Bloc trade.
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Chapter IX
THE SOVIET GROWTH DEBATE
"We are confident that the day is not far off when
our country will catch up with our American
partner in peaceful economic competition, and
then, at some station we shall draw alongside it,
and, giving a greetings signal, move on."
-Nilcita S. Ithrushchev
24 July 1959
"Some of the most valuable intelligence papers
ever written (are) those projecting the future
economic growth of the U.S.S.R."
^ 1
L 1
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CHAPTER IX
The Soviet Growth Debate
�
The late 1950's were marked .by an increased public
and official interest in Soviet economic growth.
This was stimulated by Khrushchev's repeated chal-
lenges to the West to engage in economic competition.
Khrushchev was boasting during this period that the
USSR would catch up with the United States in per
capita production of meat and milk by 1960* and pre-
dicting that Soviet per capita output would be the �
highest in the world by 1970.**
These matters were, of course, widely publicized
in the press, and since this was also a time when
Soviet space exploits were regarded by many as having
put the USSR -- if not in the lead -- at least in a
fully competitive position with the United States in
scientific prowess, public interest in assessments
of Soviet power reached a high point in this period.
ORR was accordingly often called upon to provide the
White House and other high-level consumers with data
* US milk production declined in the 1960's, and
the USSR caught up with the United States in per
capita production about 1965. The US lead in per
capita meat production has lengthened; the Soviet
consumer slipped from 37 percent of the US level in
1958 to 35.2 percent in 1970.
** As of 1 July 1971, OER estimated that the USSR
stood 13th in gross national product per capita for
1970. 185/
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on Soviet growth and, particularly, with comparative
material designed to show Soviet lags behind the
United States and estimates of how soon these might
be overcome. This material was produced not only
for the information of the President and other policy-
makers, but also for public statements by these of-
ficials.
The Agency itself was "surfaced" at this time as
an authoritative source of �economiciintelligence on,
the Soviet Union. Since 1951 the Office had been
pointing to the rapid
the Chief of Economic
economists of ORR had
rate of Soviet growth, and
Research and other senior
for some time been giving
speeches and briefings and taking part in panel dis-
cussions, not only
be-
fore other privileged government groups but also be-
fore such organizations as the Committee for Economic
Development.* These presentations were not, however,
publicized. In significant contrast, therefore, was
the address made by Allen Dulles before the US
Chamber of Commerce on 28 April 1958. His speech,
entitled "Khrushchev's Challenge," was given front-
page treatment in the New York Times. Pointing out
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that it was most probable that "the fateful battles
of the cold war will, in the foreseeable future, be
fought in the economic and subversive areas," he
presented economic assessments -- produced by
ORR -- indicating that Soviet annual growth had
been running between 6 and 7 percent -- roughly twice
that of the United States -- while Soviet industry
was growing at an annual rate of between 10 and 12
percent. Thus Soviet gross national product, about
33 percent of that of the United States in 1950, had
reached 40 percent by 1956 and might be 50 percent �
by 1962. Since consumption in the USSR amounted to
less than half of gross national product, compared
to more than two-thirds of gross national product
in the United States, Soviet investment and defense
expenditures were proportionately higher -- in fact,
investment was 80 percent of that of the United
States in 1956 and might exceed it in 1958. Point-
ing also to the rapid buildup of Soviet economic and
military aid programs in the uncommitted and newly
fl developing areas of the world, the Director concluded
r
by characterizing Khrushchev's challenge, based
largely on the economic and industrial growth of the
Soviet Union, as "the most serious challenge this
country has faced in time of peace." 186/
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This speech, designed to contribute to the
public understanding of the stature of the Soviet
economy,* caused some apprehension both domestically
and abroad.
This public exposure of the Agency's views on
the Soviet economy also had another -- probably
inevitable -- reaction. The July 1958 issue of
Fortune ran an editorial accusing Mr. Dulles of
"contributing to a legend" of prodigious Soviet
economic growth and asserting that Soviet gross
national product was in fact scarcely growing at all,
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that labor productivity was falling off, that Soviet
agriculture was having a bad year,* and that the
rate of growth in investment was declining. 187/
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G. Warren Nutter, who was quoted as say-
ing in a speech in June 1958 that:
if I had time today I would challenge
almost every statement of fact made by
Mr. Allen Dulles on the overall strength
and rate of growth of the Soviet econ-
omy. 188/
ORR was in a good position to refute the state--
merits of the Fortune editorial as well as to call
the bluff of Professor Nutter, but there is no record
that the Office's comments on these (or other) criti-
ques of the Director's speech went beyond the Agency.**
The Director made a number of other public
addresses during 1958 and 1959 on the same general
theme. In addition, he, together with
and other senior ORR officials, found increasing
demands for presentations on the subject within
the government. Among other bodies, the Congress
* The year 1958 turned out to be the best for agri-
culture WO to that time of any in Soviet history.
** Chief of Analysis Division, and
an analyst in that Division.
aia prepare a critique
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took an interest. The Subcommittee on Economic
Statistics of the Joint Economic Committee under-
took an exhaustive comparative study of the economies
of the United States and the Soviet Union, calling
upon a number of private individuals and groups for
contributions. Sixteen of these were released to
the press on 1 October 1959.* 189/ All of these
conceded that the Soviet rate of growth exceeded
that of the United States, but they disagreed on
the magnitude and the significance of this develop-
ment. 190/
The ORR position in essence, as expressed in
the numerous public statements, was that Soviet
growth rates were impressive and that even with the
slowdown that might come with declining rates of
growth in the labor force and continuing problems
in agriculture, Soviet investment plans would permit
achievement of rates during the Seven-Year Plan
(1959-65) that -- given the continuation of current
US growth rates -- would move the Soviet regime
closer to its objective of catching up with the
United States. Some critics of this position -- in-
cluding contributors to the Congressional study --
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were inclined to stress important but basically
irrelevant considerations: the meager supplies of
consumer goods, the shoddiness of many Soviet prod-
ucts, the regimentation of life, bureaucratic in-
efficiencies, and forced labor practices. Thus
there developed a full-scale debate on the issue of
whether or not the Soviet Union constituted a sig-
nificant economic challenge to the United States.
To throw into this debate arguments about living
standards and freedom -- however important these
r considerations might be in an overall comparison of
the two systems -- was to becloud the point that
L
fl
ORR wished to make: it was precisely the fact that
the Communist system in the Soviet Union was effec-
tive in allocating resources away from consumption
toward industrial and military power that made the
Soviet challenge a serious one. A more fundamental
difference developed, however, with certain econo-
mists who focused the discussion on the growth rates
themselves. Characteristic of this group were Pro-
fessor Nutter, whose criticism of the DCI's earlier
speech has been noted above, and Colin G. Clark,
research director of the Econometric Institute.
Nutter, then at the University of Virginia, had
been directing studies on Soviet industry for the
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National Bureau of Economic Research's project on
Soviet economic growth. By concentrating on the
long-run historical growth of Soviet industry, and
playing down the recent short spurts of growth, he
concluded that the rate of Soviet industrial growth
on a sustained basis had probably not exceeded the
L
rate in the American economy over comparable
periods. 191/ Colin Clark's position was essentially
similar, with the added observations that the larger
estimates of Soviet growth were based on multitu-
dinous statistical distortions and that estimates
of 6 percent or more per year were "frequently quoted
by public officials and by university, professors
who should know better." 192/
In addition to some disagreements with the
methodology and analysis of these economists, ORR
took issue with their selection of time periods.
For example, by including the years 1913 to 1928 --
years disrupted by war, political upheaval, mass
impoverishment, and chaos -- the Nutter study for
the National Bureau placed Soviet industrial growth
at 3.9 percent per year for the years 1913 to 1955.
ORR believed that because of the disruptions the
first 15 years should be excluded from the calcula-
tions. Starting from 1928, the figures for the
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USSR showed a rapid economic growth in spite of the
ravages of World War II; starting from 1950, ORR
estimated the Soviet annual industrial growth rate
at about 10 percent.
The public hearings of the Congressional Com-
f
mittee commenced
accompanied by
with the appearance of the DCI
13 November 1959.* Mr. Dulles opened his
which received front-page coverage in the
Times, by commenting on the wide range in
performance. The economy, he stated, was
-- on
testimony,
New York
Soviet
concen-
trated on building heavy industry and military
strength. Other areas were neglected, and in these
Soviet performance was mediocre. Soviet gross
national product was about 45 percent of that of
the United States, but their military effort was
roughly comparable to our own. Their agricultural
output was less than ours, and their industrial
output equal to about 40 percent of that of the US
industry.
The Russian economy prior to World War I was a
relatively large one, richly endowed with resources,
and its agriculture was producing a surplus. After
* As of mid-1972, this was the only instance of
an appearance of a DCI at an open session of a
Congressional hearing.
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the revolution, it took until 1928 to restore the
1913 level of output. By 1928,. the Soviets had
decided on a policy of forced-draft industrializa-
tion, and the five-year plans were inaugurated. In
30 years the Soviet Union had moved up to second
place among the world's industrial powers.
Dulles pointed out that virtually all Western
measurements of economic growth had concluded that
the USSR had been growing twice as fast as the United
States since 1950. There was some open controversy
over this, but differences in estimates were more
apparent than real. The Soviets intended to push
ahead and to overtake the United States in the level
of economic output. CIA analysts expected the in-
dustrial goals of the Seven-Year Plan (1959-65) to
be met, in general, but there would be a substantial
shortfall in Soviet agricultural output as compared
to the plan. Primarily for this reason they expected
a moderate slowdown in the rate of economic growth.
The analysts estimated that Soviet gross national
�product would increase to slightly more than 50 per-
cent of that of the United States by 1965 and to
about 55 percent by 1970. In the industrial sector,
237
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however, the race would be closer -- by 1970 Soviet
industry could equal 60 percent of that of the United
States.*
Thus CIA analysts considered Khrushchev s state-
ments on where the Soviets stood in their race with
the United States and their hopes of overtaking the
US economy by 1970 to be wishful thinking. However,
Dulles emphasized that the main thrust of Soviet
economic development was directed toward specialized
industrial, military, and national power goals. The
US economy was, on the other hand, much more directed
at increasing consumer-type goods and services.
Hence there was a good deal more to measuring rela-
tive power positions than the size of competing
economies. It was necessary, therefore, to look at
the uses to which economic assets are put. From
the point of view of the Soviets' power goals, the
record of progress was impressive indeed. 193/
Of Dulles' appearance before the Committee, the
New York Times editorialized a few days later:
With all the authority conferred upon
him both by his position and by the vast
intelligence resources at his command he
* In OER's judgment as of October 1971, these esti-
mates for 1970 were "right on the button:" Soviet
gross national product, 55 percent of US; Soviet
industry, 60 percent of US.
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demolished every essential position of
those who have urged complacency upon us
in the face of the Soviet economic chal-
lenge. 194/
This debate continued on into 1960, with
rn
Khrushchey and other Soviet leaders making continued
L I
boasts. As might have been expected, the Soviets
seized upon the DCI's testimony and other material
r- presented before the Congressional hearings as
L.
acknowledgment of the validity of their claims. By
quoting the DCI and others on Soviet progress and
omitting their statements on Soviet difficulties,
the various comments in the Soviet media frequently
r I presented distorted views of the work of the sub-
committee and its reports, including Dulles' state-
r-
ment. Khrushchev's reaction to the DCI's Congres-
sional testimony was typical:
r-
r
In a recent speech, Director of the
Central Intelligence Agency Allen Dulles
said that the Soviet Union would achieve
considerable successes in the tasks it set
itself of catching up with the United
States, especially in the field of indus-
trial production by 1965. Describing the
situation in Socialist countries Dulles
declared that one had to admit honestly the
sobering results of the Soviet economic
program and the amazing successes it
achieved in the past decade .... These
statements by people who cannot in any
circumstances be suspected of exaggerat-
ing our achievements and capabilities
are a further confirmation of the successes
of the Soviet Union's rapid economic
development. 195/
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The New York Times view of the impact of Mr.
Dulles' testimony notwithstanding, the debate con-
tinued domestically as well. However, the Agency
became less vocal on the subject as public discus-
sion in the United States became intertwined with
the 1960 presidential campaign. "Growthmanship"
had become a part of the political language, and
true to its tradition and its charter, the Agency
could hardly continue with public contributions that
might provide political ammunition to either side.
So effectively did the Agency mute its voice in
this respect that when CIA's only press conference
took place in 1964,* much of the press expressed
great surprise at the Agency's surfacing itself as
involved in the analysis of the Soviet economy.
Perhaps the most important fact that emerged
from these events, so far as the history of economic
intelligence in CIA is concerned, was the "arrival"
of economic intelligence as a significant part of
the national intelligence mission. In responding
to the Soviet boasts, the Director, without predict-
ing that the Soviet Union was about to "overtake"
the United States -- as he was alleged to have
done -- had brought to the attention of the public
* See Volume II, Chapter IV.
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a hitherto not generally recognized facet of the
Communist challenge. ORR's product was thereafter
more widely recognized as significant and authori-
tative, and the demands from policymakers for ORR
support rose to new heights.
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CO TIAL
CENTRAL INTELLIGENCE AGENCY
Washington, D.C.
aRNERAL npnRR
SUBJECT: Organization
Attachment A
13 November 1950
I. Office of National Estimates
1. The Office of National Estimates is estab-
lished as an additional Office of the Central
Intelligence Agency.
2. Dr. William L. Langer is announced as
Assistant Director for National Estimates.
II. Office of Research and Reports
1. The designation of the Office of Reports
and Estimates is changed to Office of Research
and Reports.
2. Mr. Theodore Babbitt will continue as
Assistant Director.
WALTER B. SMITH
Director
DISTRIBUTION': 3
259
CO TIAL
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OFFICE OF RESEARCH AND REPORTS
ASSISTANT DIRECTOR
FOR
RESEARCH & REPORTS
�
PRODUCTION
STAFF
MATERIALS
DIVISION
MANUFACTURES
DIVISION
' CIA REGULATION NO. .70
ECONOMIC
SERVICES
DIVISION
ECONOMIC
ANALYSIS
DIVISION
BASIC
INTELLIGENCE
DIVISION
GEOGRAPHIC
DIVISION
19 January 1951
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OFFICE OF RESEARCH AND REPORTS
I. MISSION E.
The Assistant Director for Research
and Reports is charged with conduct-
ing intelligence research and produc-
ing intelligence reports (excluding
scientific intelligence) under the F.
approved Agency intelligence produc-
tion program.
II. FUNCTIONS
The Assistant Director for Research G.
and Reports shall:
A. Formulate and recommend the in-
telligence research program
for his Office.
B. Conduct intelligence research and
produce intelligence reports in H.
specified fields of common con-
cern, and in other fields as
directed.
C. Coordinate the research and re-
porting activities of Govern-
mental and other agencies in
specified fields of common con-
cern and in other intelligence
fields as directed.
D. Provide for centralized alloca-
tions and coordinaton of the
National Intelligence Surveys
program.
CIA REGULATION NO. 70
I.
Provide centrally for the produc-
tion and coordination of foreign
geographic and map intelligence,
and for the procurement and prepa-
ration of intelligence maps.
Formulate and establish the neces-
sary requirements for intelligence
information for his Office for
transmittal through appropriate
channels for collection action.
Provide CIA collection offices and
other governmental collection
agencies with evaluations on
their reports which fall within
fields of intelligence research
and reporting responsibilities
of his office.
Provide graphic support for the
Director of Central Intelligence,
the Assistant Director for Scien-
tific Intelligence, the Director
of Training and other Agency offi-
cials, as necessary.
Perform such other functions re-
lated to intelligence research or
reporting as may be directed.
19 January 1951
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ATTACHMENT C
The preoccupation with the economy of the
Soviet Union during the 1950's was such that the
various branches of the Industrial Materials, and
Service Divisions were organized to conform, inso-
far as practical with the ministerial structure
of the Soviet Union. Thus the following branch
breakdown was proposed by
T/0 of these three divisions:
INDUSTRIAL
DIVISION
MATERIALS
DIVISION
� Military Ferrous Metals
- Equipment & Minerals Branch
Branch
� Production
- Equipment
Branch
Non-Ferrous
Metals &
Minerals Branch
Ammunition Special Corn-
- Branch modities Branch
Capital Goods Petroleum
- Branch Branch
Aircraft Solid Fuels
- Branch � Branch
Ship-building Chemicals
- Branch Branch
Industrial Food & Agricul-
- Projects ture Branch
Branch
Electrical
- Equipment'
Branch
for the Interim
ECONOMIC '
SERVICES
DIVISION
Transportation
Branch
Communications
Branch
Labor & Manpower
Branch
Trade & Finance
Branch
Electric Power
Branch
Construction
Branch
Economic Organi-
zations
Branch
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Strategic Division, the interim organization
for processing special intelligence, contained
branches with substantive responsibilities similar
to these divisions, each with sections roughly
equivalent to the above-listed branches.
The Economic Analysis Division was more of a
catch-all, including several branches assigned to
the economic defense activity, that is, Economic
Warfare Branch, Export Control Support Branch,
Target Selection Branch, and Composite Reports
Branch.
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CON TIAL
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ATTACHMENT D
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NSCID 15
Corrected
June 22, 1951
NATIONAL SECURITY COUNCIL INTELLIGENCE
DIRECTIVE NO. 15
COORDINATION AND PRODUCTION
OF FOREIGN ECONOMIC INTELLIGENCE
Pursuant to the provisions of Section 102 (d) of the
National Security Act of 1947, as amended, the National
Security Council hereby authorizes and directs the
Central Intelligence Agency to perform the following
functions with respect to foreign economic intelligence
relating to the national security:
1. Maintain a continuing review of the
requirements of the United States Government
for foreign economic intelligence relating
to the national security, and of the facili-
ties and arrangements available to meet those
requirements, making from time to time such
recommendations to the National Security
Council concerning improvements as may re-
quire National Security Council action.
2. Insure through regular procedures
that the full economic knowledge and tech-
nical talent available in the Government
is brought to bear on important issues in-
volving national security, including issues
on which assistance is requested by the
National Security Council or members thereof.
3. Evaluate, through regular procedures,
the pertinence, extent, and quality of the
foreign economic data available bearing on
national security issues, and develop ways
in which quality could be improved and gaps
could be filled.
264
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4. Conduct, as a service of common
concern, such foreign economic research
and produce such foreign economic intel-
ligence as may be required (a) to sup-
plement that produced by other agencies
either in the appropriate discharge of
their regular departmental missions or
in fulfillment of assigned intelligence
responsibilities; (b) to fulfill requests
of the Intelligence Advisory Committee.
NSCID 15
Corrected
June 22, 1951
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Attachment E (b)(3)
ASSISTANT DIRECTOR 1022
RESEARCH AND REPORTS
ADMINISTRATIVE STAFF
14
EXECUTIVE
REQUIREMENTS AND
CONTROL STAFF 44
CHIEF 192
GEOGRAPHIC RESEARCH
10
52
GEOGRAPHY DIVISION
12
USSR BRANCH
10
IFAR EAST BRANCH
I WESTERN EUROPE
BRANCH
SATELLITES BRANCH 6
NEAR EAST AFRICA
BRANCH
WESTERN HEMISPHERE
BRANCH
TERRITORIAL STUDIES
BRANCH 6
62
CARTOGRAPHY DIVISION
a
EUROPE AFRICA
COMPILATION BRANCH6
USSR-SATELLITES
COMPILATION BRANCH
FAR EAST
COMPILATION BRANCH7
55
MAP LIBRARY DIVISION
5
+ PROCUREMENT BRANCH
17
REFERENCE BRANCH
6
PROCESSING BRANCH
27
DEVELOPMENT AND 22
CONSTRUCTION BRANCH
GRAPHICS BRANCH 7
SPECIAL SUPPORT
BRANCH 5
PHOTO-INTELLIGENCE 13
DIVISION
3
INDUSTRIAL BRANCH I
5
GEOGRAPHIC BRANCH
5
34
ANALYSIS DIVISION
5
ADVISORY STAFF
4
644
CHIEF
ECONOMIC RESEARCH
1
ECONOMIC
CONSULTANTS
ECONOMIC ACCOUNTS
BRANCH 7
Estimates File
Evaluations
ECONOMIC
SURVEYS BRANCH 7
Handbook
Area Analysis
Special Projects
CAPABILITIES BRANCH
11
Methods and Concepts
Empirical Analysis
MATERIALS DIVISION
149
a
BUDGET AND PLANS
BRANCH 4
REPORTS DIVISION
CHIEF
COORDINATION STAFF
3
122
28
EIC SECRETARIAT
BASIC INTELLIGENCE70
44
ECONOMIC DEFENSE
DIVISION
DIVISION
3
7
7
PROJECT INITIATION AND
CONTROL BRANCH
REVIEW AND PUBLICA-
TIONS BRANCH 19
AGRICULTURE BRANCH
27
Regions
Grain and Feed
Livestock
Fibers and Leather
Forestry
Fisheries
Technical Crops
CHEMICALS BRANCH
27
Rubber and Plastics
Military Chemicals
Basic USSR
Basic Satellites
International Supply
FERROUS METALS
BRANCH 23
Prime Raw Materials
Alloying Materials
Iron and Steel Production
Requirements and
Distribution
NON-FERROUS MINERALS
BRANCH 24
Major Metals
Minor Metals
Light Metals
Non.Metallic Minerals
PETROLEUM BRANCH
24
Crude Production
Refining
Distribution and
Consumption
Quality Requirements
Pipe Lines
SOLID FUELS BRANCH
8
Production
Utilization
SERVICES DIVISION
97
5
SPECIAL COMMODITIES 1
BRANCH 81
111
INDUSTRIAL DIVISION
6
REGIONAL REVIEW
BRANCH 10
EDITORIAL BRANCH
30
PUBLICATION BRANCH
23
EXPORT CONTROL
BRANCH 11
ECONOMIC MEASURES
BRANCH 10
AREAS BRANCH
8
1
COMMODITIES BRANCH
a
ACEP Support
Transport Controls
NATO and
Western Europe
Metals
EDAC Support
Blacklists
Far East
Chemicals
Lists and Regulations
Preclusive Buying
Near-East-Africa
Machinery
Latin America
Electrical
AMMUNITION BRANCH
7
Artillery and Mortar Arms
Small Arms Ammunition
Unguided Rockets
B Tsbcae I ineeosu d
CAPITAL GOODS BRANCH
16
Transportation Equipment
Materials Handling, Constr
and Extraction Equipment
Hey dustrial
Equipment
Metallurgical Machinery
Anti-Friction Bearings
AIRCRAFT BRANCH
14
Aircraft
Aircraft Engines
Aircraft Components ,
ORGANIZATIONS BRANCH
6
Soviet
Satellite
China
TRADE AND FINANCE
BRANCH 24
Statistics
Soviet-European
Satellite Trade
Soviet-Far East
Satellite Trade
Free World-Orbit Trade
Effective 20 August 1952
TRANSPORTATION BRANCH
20
Railroads
Ocean Shipping
Inland Waterways
Air
Highways
ELECTRIC POWER BRANCH
9
Generation
Transmission
Requirements
LABOR BRANCH
Population Analysis
Training and Efficiency
COMMUNICATIONS
BRANCH
Radio
Landline and Cable
CONSTRUCTION BRANCH
12
Industrial
Transeliggplon and
Hydro
Housing
CONSUMER GOODS AND
SERVICES BRANCH
180
STRATEGIC DIVISION
PRODUCTION EQUIPMENT
BRANCH 18
Machine Tools
Perishable Tooling
Other Metal Working
Machinery
Instruments
Agricultural Machinery
Special Industrial
Machinery
SHIPBUILDING BRANCH
10
Shipbuilding
Naval Ordnance
ELECTRICAL EQUIPMENT
BRANCH 11
Electrical Machinery
and Apparatus
Electronic Apparatus
Electrical and Electronic
Components
Telecommunications
Equipment
HEADQUARTERS
21
dmineetglr and
Review and Production
...IResearch Coordination
and Current intelligence
TECHNIQUES AND
METHODS DIVISION
1
3
ANALYSIS BRANCH
4
OPERATIONS BRANCH
12
-SECRET�
MATERIALS BRANCH
44
Food and Agriculture
Fuel and Power
Stockpiling
Metals
Chemical
1
INDUSTRIAL BRANCH ;
42
Aircraft
Electric
Industrial Equipment
Construction
Light Industries
Motive Equipment
Shipbuilding and Weapons
SERVICES BRANCH
26
Communications
Finance and Plan
Labor and Henpower
Transportation
Organizations
INTERNATIONAL BRANCH
27
Soviet-European
Satellite Trade
East-West Trade
Far East Trade
Shipping
REGIONAL BRANCH
20
Soviet Areas
Far East Areas
WEAPONS BRANCH
16
Armored Vehicles
Artillery and Small Arms
MIlitary
Engineering
,H Guided Missiles and
Launches
INDUSTRIAL PROJECTS
BRANCH 13
Chine
Special Projects
266
(b)(3)
Approved for Release: 2023/06/14 005972161
Approved for Release: 2023/06/14 005972161
(b)(3)
Approved for Release: 2023/06/14 005972161